George Osborne to hail GDP figures as return to sustained economic growth

The Treasury will try to maintain a cautious posture on Wednesday, but start to put the political squeeze on the shadow Treasury team by claiming its dire predictions of mass unemployment have been proved untrue.

The shadow chancellor, Ed Balls, in the US for talks with the Obama administration, has already prepared the ground for the change of economic gear by highlighting the continued squeeze on living standards.

Balls has privately long acknowledged that growth will pick up well before the 2015 election, but is convinced that the massive wage squeeze, leaving living standards at 2004-5 levels, will make it impossible for Osborne to try to generate a political feelgood factor.

The Balls team are also pointing out that the chancellor is still planning massive spending cuts in 2015-16.

Chris Leslie, the shadow financial secretary to the Treasury, said: “City forecasters are expecting growth of up to 0.8% this quarter and, after three years of flatlining, it’s about time we had some growth in our economy.

“But with living standards still falling and the IMF warning we are a long way from a strong and sustained recovery the chancellor should be acting to ensure we catch up all the ground we have lost over the last few years.”

He added that to lift the economy to where the Treasury had expected it to be by the end of the parliament, growth would need to be 5.3% a year over the next two years.

Experts are forecasting growth figures for the second quarter of around 0.6% to follow an increase of 0.3% in the first three months of 2013.

The quarterly industrial trends survey by the CBI found manufacturers started the summer in buoyant mood following the first rise in new orders for a year.

Firms increased production and employment as the outlook for the sector improved in the three months to the end of July. The quarterly industrial trends survey also found that firms anticipated a further modest rise in orders and output in the coming three months, while expectations for growth in new domestic orders were at their highest since April last year.

However, the improving situation, which is also reflected in other surveys of manufacturers, failed to persuade firms to increase investment in new equipment.

The CBI said planned capital expenditure on plant and machinery over the next 12 months had deteriorated slightly. “When asked about factors likely to limit investment, manufacturers most often cited uncertainty about demand, which was of slightly greater concern than usual,” the CBI said.

The Office for Budget Responsibility, which monitors the economy for its impact on the government’s finances, has pencilled in a recovery in investment over the next two years to underpin a return to average growth levels.

Manufacturers’ intentions to invest in plant and machinery dipped -1% compared with -9% in the previous quarter. The survey’s main total-orders balance picked up from -18 in June to -12, which is its strongest level since last December.

Samuel Tombs, UK economist at the consultancy Capital Economics, said the sector’s recovery was gathering momentum, though at a slower pace than the services sector.

“This improvement brings the CBI’s survey in line with the relatively upbeat tone of the other surveys.

“But with demand for exports weak in the UK’s largest market, the eurozone, and domestic consumers’ real pay still being squeezed, it is hard to see how the manufacturing sector’s recovery can gather much more pace in the near term,” he said.