Comment: Green shoots built on surge in house prices

George Kerevan
George Kerevan
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GOOD economic news amid all the political froth: the pace of UK growth rose in the third quarter.

Output is up a solid 1.5 per cent on the year to September. We’ve had three successive quarters of expansion, making Britain one of the strongest performers in the industrial world. Those green shoots are starting to bud.

Less clear is what is driving this expansion. Certainly the construction sector is back in rude health with output up 2.5 per cent over the summer, on the back of the revival in house building. That can be put down to the Chancellor’s new subsidies for buyers.

However, the main explanation for the upturn seems to be a jump in consumer confidence – now at its strongest since 2009. Again, this is a reflection of developments in the property market where the wealth effect of higher house prices – expected or actual – is giving consumers confidence to spend despite earnings lagging behind inflation. UK car production is at its highest level in five years, driven by a spike in domestic demand. Naturally, Chancellor George Osborne is taking credit for the recovery, arguing he was right to stick to his austerity guns. But recent growth has nothing to do with austerity rebalancing the economy towards private sector investment and exports. Recovery is down to an old fashioned mini-bubble in property prices.

We have a few siren voices. The CBI is still arguing recovery is too narrowly based. Also, inflation expectations have surged on the back of the traditional winter rise in energy bills, which could blunt consumer confidence over the Christmas shopping period.

I’m sanguine, at least in the short run. Inflation plus the jump in property values helps erode the debt overhang left over from the last bubble. That will drive consumption till after the general election, which is what Osborne really cares about. In the long run, of course, we are all dead.

All of a Twitter over Royal Mail flotation

As Vince Cable knows, setting an initial share price is tricky. Which is why micro-blogger Twitter’s announcement that its offer price will be in the modest £10-£12 range is significant. That’s around half what Facebook set for its initial public offering (IPO) price last year – with disastrous results.

The notorious Facebook launch was badly handled: too much hype caused turmoil and harmed the company. Twitter wants a more dignified entry to the market and is offering early buyers a large potential premium. Reason: it needs committed investors while it navigates its way to profit.

Twitter ran up a £43m loss on revenues of only £157m in the first half of 2013. Meanwhile, Royal Mail shares this week valued the company at £2 billion more than the IPO. Contrary to Cable, this represents value rather than froth. But I’m less censorious of the Business Secretary than others. Like Twitter, Royal Mail needed to secure investor confidence. It’s done that in spades.