Britain keeps on booming

GORDON Brown has confounded his critics after it emerged that the nation's wealth grew at a faster than expected rate in the third quarter of the year.

Official figures show the economy expanded by 0.5% against previous estimates of 0.4%. This means the British economy has now expanded for 50 quarters in a row - the longest sustained period of prosperity since present growth statistics were established in 1955.

The economic renaissance can be dated back to Britain's ejection from the European Monetary System in 1992, under Tory Chancellor Norman Lamont.

Since the second quarter of that year the British economy has expanded at an average rate of 2.8% a year. The nation is now enjoying 3.1% annual growth, meaning the Chancellor can boast the second strongest performance among the world's five largest economies. The leader is the US, with an annual average growth rate of 3.3%.

Of our major European partners, France's economy is growing by a paltry 1.9%, Italy by 1.4% and Germany by 1.2%. Recovery in Europe will not be helped by the surge of the single currency against the dollar in the year ahead.

In latest trading the euro jumped to a record $1.35, the highest level since its launch five years ago. A stronger euro will make it harder for Europe to export its way out of trouble.

The shine will be taken off Britain's extraordinary growth record by some poor international trade figures. The deficit on our current account, made up of goods and financial services, climbed to £8.8bn - much higher than the £6.3bn City experts were expecting.

The breakdown of the numbers shows that the contribution of exports to the nation's growth has been reduced from 1.9% to 0.7%. The bulk of the improvement in output came from household spending and renewed business investment.

{1}Hopes that manufactured exports would fill the vacuum as the consumption and the housing sector slowed - in response to interest rates of 4.75% - have been dashed. Much of the slump in the current account can be attributed to a slowdown in investment income from overseas.

But City economists believe the pound has become seriously overvalued, particularly against the dollar. They say it will require a devaluation to start correcting the overseas trade gap. The pound was trading at $1.92 and was worth 70p against the euro.

The fear must now be that there will be insufficient export income in 2005 to overcome shortfalls in growth from the slowdown in household spending and the housing market. This could make it much more difficult for the Chancellor to meet his central growth forecast of 3.25%, a figure disputed this week by no less an authority than the International Monetary Fund.

An analysis of the British economy by the Halifax shows that between the second quarter of 1992 and third quarter of 2004, inflation and bank base rates averaged 2.5% and 5.7% respectively. This contrasts with the 1970s when inflation and unemployment were often in double figures.

Halifax chief economist Martin Ellis said: 'It is too early to conclude that this period marks an end to economic boom and bust. But it undoubtedly has been an excellent performance by the UK economy.'