UK Economy in Best Shape Since 2007 says Deloitte

Posted on 14 January, 2014 by Cliff Goodwin

After gathering pace throughout 2013 Britain’s economy is on track for its strongest year of growth for six years, one of the country’s leading economists has predicted.

UK-Economy-in-Best-Shape-Since-2007-says-Deloitte

Writing in Deloitte’s UK Real Estate Predictions, Ian Stewart says that after the false start of 2011 “the recovery came earlier and faster than expected in 2013, with Britain going from being one of the rich world’s growth laggards in January to one of its stronger performers by December”.

The rebound, when it came, was a combination of three factors.

“A diminution in external economic risk, especially in the euro area, bolstered business prospects. And an estimated £12bn of compensation payments for the mis-selling of payment protection insurance gave the consumer sector a shot in the arm,” claims Deloitte’s chief economist. “The intoxicating effects of five years of rock bottom interest rates and quantitative easing are finally working their magic.”

Like all classic upswings, the consumer is at the sharp end of the recovery. “Consumer spending accounts for 60 per cent of the economy and it is hard to imagine the UK recovering without continued growth, even at subdued rates, in consumer activity,” adds Stewart. “We think that in 2014 earnings growth will outstrip inflation for the first time since 2009. This should be enough to sustain a continuing, if modest, growth in consumer spending.”

Investment — which has flatlined since 2008-09 — is the final link in the recovery chain, he adds. “With the Deloitte CFO Survey reporting that risk appetite among chief financial officers is at the highest level in six years the stage seems set for a rebound in corporate investment and spending more generally.

There are indications that firms are not operating with huge amounts of spare capacity. If the capital stock is worn out, returns to investment, particularly at current low borrowing costs, ought to be attractive.”

On average economists forecast the UK will grow by about 2.5 per cent this year.  Pre-crisis that would have been regarded as a solid and unimpressive rate of growth. But after five years in which the economy has shrunk, 2.5 per cent growth looks relatively good and, if realised, would represent the strongest growth since 2007.

“Continued growth requires an absence of the sort of external shocks – especially in the euro area – which derailed an incipient recovery in 2011,” concludes Ian Stewart.

“To maintain the pace of recovery, and to ensure a better balanced pattern of activity, the UK needs a strong rebound in capital spending and consumer incomes. Macro and financial uncertainties have reduced, but have not been eliminated. Nonetheless, the UK enters 2014 in far better shape than it entered 2013.”




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