UK: Deloitte Monday Briefing: An End-Of-Term Report For The UK Economy

Last Updated: 10 July 2014
Article by Ian Stewart

Most Read Contributor in UK, August 2017

A personal take on economics from Ian Stewart, Deloitte's Chief Economist in the UK.

  • As the school term draws to an end how would an end-of-term report for the UK economy read?
  • The standout feature of the last year has been the sheer pace of growth. GDP has increased by 3.0% over the last year, making the UK one of the world's fastest-growing developed economies.
  • Activity is rebalancing away from finance and government. Output from the financial and insurance services sector, one of the super-growth sectors of the boom years, is in its sixth year of decline. Government spending is growing more slowly than GDP as the drive to reduce the public sector deficit continues.
  • Manufacturing has emerged in the last year as a significant driver of the recovery, with manufacturing output growth outpacing activity in the wider economy. The construction sector, which suffered two deep recessions in the last six years, is expanding strongly, helped by a surge in house building.
  • The UK's fastest growing sector is professional and business services. This sector accounts for 11% of GDP, more than manufacturing, and covers services provided to the other businesses - law, accountancy, architecture, consulting, scientific research and business support services such as employment agencies, call centres and office cleaning. Output growth here has risen by a heady 9.1% in the last year.
  • A surge in contracting-out by a value-conscious government has supported this growth. The Institute for Government estimates that government spending on outsourcing companies has risen by 23% in the last two years. More important, though, is the recovery in the wider corporate sector which is fuelling demand for professional and business services.
  • During the recession companies hunkered down, saving rather than investing or expanding, and became major providers of capital to the rest of the economy. Investment plummeted and the corporate sector financial surplus – a rough proxy for corporate saving – rose.
  • This is changing. In the last year business investment rose by 10.6%. In a sign of growing confidence, the corporate sector financial surplus is shrinking. Corporates are prioritising expansion over strengthening their balance sheets. A recovery in investment offers the prospect of a better balanced and more sustainable growth.
  • Like the best school reports, this one should combine praise for the things that are going right with a hard-headed assessment of the challenges ahead.
  • First, the bit all parents love, the positive news: "After a grim few years the UK is doing far better than any of us expected and far better than its peers. We are seeing welcome strength in investment, manufacturing and construction. The squeeze on government spending has not, as many feared, prevented a private-sector recovery. Companies feel less need to strengthen their balance sheets and are hiring and investing. Low inflation and rapidly falling unemployment are bolstering consumer spending power".
  • The less palatable bit of the report might read as follows, "Yet some of the UK's familiar problems have re-surfaced: the housing market is showing signs of excess; productivity, or output per person, has remained weak, as has the UK's trade performance; investment is way below its long-term levels and consumer incomes are still falling. This recovery is strong, but its sustainability will depend on how the UK deals with these challenges".


UK's FTSE 100 ended the week down 0.9%.

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


  • UK business investment rose at an annual rate of 10.6% in Q1 2014, the fifth consecutive quarter of growth
  • Mark Carney, the governor of the Bank of England, said people should focus on a medium-term "new normal" of interest rates around 2.5%
  • The Bank of England introduced a cap on mortgages – with no more than 15% of banks' lending to be more than 4.5 times incomes
  • New Purchasing Managers Index (PMI) data for Europe showed growth in Germany and France slowing, whilst growth in 'peripheral' Europe is at its strongest since August 2007
  • Police in Greece discovered and broke up a fraudulent lottery which made €36m by selling fake online lottery cards to around 360,000 Germans
  • Japanese Prime Minister Shinzo Abe unveiled more of his 'third arrow' of structural reforms for the Japanese economy, including slashing the country's corporate tax rate
  • The number of freelancing mothers in the UK has risen by 24% in the past 2 years, with many citing the need for more flexible hours according to research published think-tank Demos
  • China's chief auditor discovered 94.4bn yuan ($15.2bn) of loans backed by falsified gold transactions
  • Dodo Pizza, a Russian pizza chain, claims that it successfully delivered a pizza by drone, saying that they intend to use drones to deliver pizzas to open-air areas including parks
  • The London Metal Exchange (LME) announced that it will keep its open-outcry trading ring, the only European financial market to still use one
  • India is the world's most entrepreneurial country according to a ranking of 33 countries by Oracle Capital Group, scoring strongly on the ability to set up a business quickly and cheaply
  • Nearly half of Americans say that poverty is caused by circumstances beyond individual control according to a NBC News/Wall Street Journal poll, compared to a third who thought the same in 1995
  • Ghana's president John Dramani Mahama dispatched a plane with more than Ł1.7m in cash to Brazil to pay their World Cup squad after a protest over unpaid fees
  • An index created by a Yale economist, where a country's passion for football is multiplied by its average level of poverty multiplied by its population, predicts victory for Nigeria would bring the most aggregate happiness
  • Toymaker Mattel is to launch 'Entrepreneur Barbie' this summer – a doll with her own smartphone, tablet computer and Linkedin page – to correspond with the rise of female-owned businesses in the real economy – the plastic ceiling

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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