UK: Deloitte Monday Briefing: Britain’s Surprisingly Strong Recovery

Last Updated: 15 November 2013
Article by Ian Stewart

Most Read Contributor in UK, August 2017

* In ten months, the UK has gone from being one of the rich world's growth laggards to being one of its stronger performers.

* Since February, economists have raised their forecasts for UK growth next year more quickly than for any other big, industrialised country.

* In the second and third quarters of this year, the UK economy grew at above-trend rates and at the fastest pace in three years.

* The European Commission predicts that the UK will be Europe's fastest growing major economy for the next two years.

* But before we get carried away we need to put this in perspective.

* On average, economists forecast the UK will grow by 2.2% next year. Before the financial crisis that would have been regarded as a normal, if unremarkable, rate of growth. But after five years in which the economy has shrunk, 2.2% growth seems like a pretty good rate and would represent the strongest growth since 2007.

* So, where is the growth coming from?

* The big swing factor is consumer spending. It has been on a recovery path since late 2011. Growth in consumer spending has outstripped growth in the rest of the economy for the last 18 months.

* Since the start of this year, retail sales have risen by over 4.0% and housing transactions are up by 16%. Car sales in September rose to the highest level since March 2008.

* On the output side of the economy the fastest growing sectors have been close to the consumer - retail, hotels, restaurants and construction.

* Policymakers have been hoping for a balanced recovery, with manufacturing, exports and investment in the driving seat. That has not happened yet. So far, this has been a classic UK upswing, with the consumer in the lead. 

* An additional concern is that much of the consumer spending is being financed by reduced levels of saving, increased indebtedness and windfall gains from payment protection insurance compensation.

* But none of this should obscure the fact that growth is coming back. These are early days and after such a deep and prolonged recession unbalanced growth is better than no growth.

* Investment often lags the economic cycle, with companies first exhausting spare capacity and then starting to invest. Given the raft of shocks companies have had to cope with in recent years, it would not be surprising if they want more evidence that the recovery is on track before committing to capital spending.

* Business surveys provide a good guide of where the economy is going and the message from the latest crop – including our own CFO Survey – is that across sectors firms are gearing up to spend and to expand.

* The UK is on the mend. With luck, where the consumer leads, investment, exports and manufacturing will follow.


UK's FTSE 100 ended the week down -0.4%.

Here are some recent news stories that caught our eye as reflecting key economic themes:


* The US economy grew at a faster-than-expected annual rate of 2.8% in the third quarter and added a very strong 204,000 new jobs in October, despite the shutdown of the Federal Government
* The European Central Bank (ECB) surprised markets by cutting its benchmark interest rate to a new record low of 0.25%
* Germany's trade surplus reached a record €18.8bn in September, fuelling claims that German export growth is preventing euro area rebalancing
* Greek consumer price inflation fell by an annual rate of -2.0% in October Greek, the worst deflation recorded since 1962
* The EU cut its forecast for growth in the euro area in 2014 from 1.2% to 1.1% and predicted unemployment will not begin to fall until 2015
* The Office for National Statistics (ONS) forecast that the UK population will rise by 9m to more than 73m by 2037, driven by increased immigration
* The Spanish car industry is on course to invest as much as €5bn to expand its plants this year, with production up 10% and investment attracted by increasingly flexible labour contracts
* Chinese exports rose by 5.6% in October, beating forecasts of a 1.5% rise and well-above September's -0.3% decline
* American framing lumber prices – a good indicator of US building activity – have risen by over 15% over the last year
* UK property website Rightmove reported that page views rose 30% in the 4 months to the end of October, with enquiries about listed properties up 80% compared to a year earlier
* More than $1m of Bitcoins – the online currency – were stolen when one of the online peer-to-peer currency's payment processors was hacked
* Bloomberg reports that 3D printing has contributed to a revival of niche small manufacturers in the United States, with makers of dies and machine tools having increased employment by around 18% since August 2009, compared with a 2.9% rise for manufacturing overall
* Poundland, the UK discount retailer, is reported to be preparing for a London stock market listing that could see the group valued as high as £800m
* UK website Moneysupermarket said revenues are up 25% since the start of October compared to a year earlier, with the website benefitting from customers seeking to switch energy suppliers
* A computer-controlled fund called the Vanguard Total Stock Market Index, which aims to replicate the performance of the US stock market as opposed to beating it, has become the world's largest fund with $251bn of assets
* The US government is to begin to sell floating rate Treasury bonds from January, offering buyers protection from a rise in interest rates
* The FT reports that the Israeli government is to fast-track plans to set aside 40% of newly developed gas reserves for exports, potentially making the country a major global gas exporter
* A small toilet room in Kensington, West London, advertised at £150,000 with a 107-year unexpired lease, failed to sell at The Cumberland Hotel auction despite its sought-after location – flash in the pan

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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