Short term gains, long-term questions
In more positive news for the UK economy, Britain’s economic prospects are higher than at any time in the last decade.
The Confederation of Business Industry (CBI) said that the retail, manufacturing and service sectors registered record growth in May in a sign that the recovery is broadening across the wider economy.
The CBI now forecast a growth level of 3.1% in 2014, a level previously reached pre-credit crunch and up on previous forecasts of 2.8%. Though the economy is expected to slow in 2015 the momentum is there to be built upon.
Katja Hall, the CBI’s deputy director-general said:
“What’s encouraging is that growth is becoming more broad-based, with solid increases in business investment over the past year. This bodes well for the year ahead.”
The service sector also saw further increases in confidence underlined by a continuing trend to recruit staff. Under the Markit/CIPS Service Purchasing Managers’ Index a measure in excess 50 suggests the economy is expanding. In May this figure stood at 58.6.
This level of confidence and hiring activity had only been seen once since the era of New Labour in 1997 according to Markit/CIPS
Chris Williamson, chief economist at Markit, said that the results:
“Continued to boom in May, in what is the best spell of growth since 2007.
“Higher wage growth is starting to follow the labour market upturn, but until substantial increases in pay rates materialise in the official data, the chances are that the Bank of England will keep its foot firmly on the accelerator pedal to help keep the economy booming.”
German market research company GFK also waded into the positive news arena reporting that all five of their measures of consumer confidence showed increases in May to 0, a status which represented the first time the UK came out of negative territory on the index since 2005.
However the buoyant economy brings a challenge for the Bank of England with Threadneedle Street expected to raise interest rates from their long term level of 0.5% much earlier than expected, potentially as early as Q1 2015.
The Treasury however remained positive with a Spokesman saying:
“Today’s reports from the British Chamber of Commerce, Confederation of British Industry, and GfK provide further evidence that the government’s long term economic plan is working, delivering economic security for hardworking people. Coming alongside last week’s strong growth and investment numbers, today’s figures show that the foundations for a broad based recovery are in now place. But we cannot take the recovery for granted and the biggest risk now to economic security would be abandoning the plan that’s laying the foundations for a brighter economic future.”
British Chambers of Commerce Director General John Longworth cautioned:
“Our forecast confirms that Britain is leading, rather than following, other major economies when it comes to short-term growth.”
Adding:
“The task at hand is to ensure that 2014 is not ‘as good as it gets’ for the UK economy.
“Everything possible must be done to avoid slower growth in future. We urge the Bank of England to keep official interest rates low for as long as possible, and ensure that future rate rises are gradual and modest.
“We have made far too much progress in recent years to simply accept that growth rates are permanently lower than they were before the financial crisis.”
With every silver lining comes a cloud for UK businesses it seems but the positive signs from the economy and the broad spectrum of contributors at least means we are on the up again after years in the doldrums.
How the economic impact of future rate rises will affect business and consumer confidence however very much remains to be seen. For now though, let’s enjoy the positive news whilst it lasts.