UK to surpass pre-crisis levels earlier than expected, says BCC
BCC upgrades its forecasts for growth to 2.8pc this year and 2.5pc next year
6:30AM GMT 10 Mar 2014
Britain's strengthening recovery will see the economy surpass its pre-crisis peak earlier than expected, according to two leading business bodies, with private-sector optimism now stronger than all other advanced economies.
A week before Chancellor George Osborne is expected to present brighter economic growth forecasts, the British Chambers of Commerce (BCC) said the economy, which is currently 1.4pc below its pre-recession peak, would exceed these levels in the second quarter of the year. A year ago, the BCC predicted the pre-recession high would not be achieved until 2016.
The BCC upgraded its forecasts for growth to 2.8pc this year and 2.5pc next year, from previous projections of 2.7pc and 2.4pc.
"Our economic recovery is gaining momentum. Businesses across the UK are expanding and creating jobs, and our increasingly sunny predictions for growth are a testament to their drive and ambition," said John Longworth, director-general of the BCC.
A separate survey by accountancy firm BDO showed UK economic output was on course to surpass pre-recession levels by the summer. Peter Hemington, a partner at BDO, noted there was "markedly strong optimism and hiring intentions across all sectors of the economy".
Disappointing US data in recent months mean UK business optimism is now stronger than all other major developed and emerging economies, according to Markit.
"The UK's growth surge shows no sign of abating, with business intentions for the year ahead not only the highest seen over the past five years but also higher than any other major developed country," said Chris Williamson, Markit chief economist.
"Most encouraging is the indication that companies are ramping up their investment spending alongside increased hiring."
Real wages will also return to modest growth this year, according to the BCC, in another sign that the recovery is bedding in. However, economists warned that growth remained unbalanced, and that the recovery would be unsustainable without a stronger business investment and export growth.
"Real wages will only increase if productivity goes up, and that requires investment," said David Kern, the BCC's chief economist.
The BCC also said that while output would shortly surpass pre-crisis levels, the recovery compared "unfavourably with G7 economies such as Germany and the US … where GDP is already well above pre-recession levels".
"It's not time to break out the champagne glasses just yet," said Mr Longworth. "Crucially, Britain is simply not investing enough. There is also more to do in securing access to finance for growing firms – as this too will be crucial to securing our economic future."
The BCC expects household spending, which accounts for two-thirds of the UK’s economic activity, to continue to drive the recovery, with consumer spending growth of 2.4pc expected in 2014, rising to 2.5pc in 2015. While business investment is also expected to rise 6.6pc this year, following a decline of 1.2pc in 2013, even a double digit increase would leave investment well below pre-recession levels. UK exports are also expected to make a healthy contibution to growth, although the business body said net export growth was “still inadequate”.
Mr Kern said consumer spending would be fuelled by a further raid on savings, with the saving ratio forecast to fall from 5.1pc in the first three quarters of 2013 to 4.2pc in 2016. While many economists have warned such dissaving is unsustainable, Mr Kern said this also pointed to increased confidence and the “wealth effect” from Britain’s buoyant housing market. “In the UK, the housing market is very important to the feel-good factor of the consumer, and I think the consumer had to drive the recovery initially,” he said. “I don’t think what has happened so far is a concern if we can move to a wider stage of the recovery. In my opinion, without the consumer and housing, we would not have had a recovery at all.
“House price rises would only start to concern me if they got much faster and if we didn’t see anything happening on the investment front or exports.”
Meanwhile, research by Policy Exchange showed productivity and pay were hit hardest by the financial crisis. Both decreased sharply at the beginning of 2008, according to the think-tank, falling back to 2005 levels by the first quarter of 2009. Wages fell across “all regions of the UK and in all industries, with the exception of agriculture, forestry and fishery,” it said. The think-tank also called on the Government to consider measures in the Budget to help businesses hire more staff.
A separate survey showed business activity continued to increase across England and Wales. The West Midlands posted the strongest growth, according to Lloyds Bank, while the East Midlands and North East recorded the weakest rates of expansion.
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