UK economy set to hit pre-recession peak by summer
After six bleak years, news that the UK economy is set to hit its pre-recession peak by this summer is enough to merit a public holiday.
Business confidence is rising along with recruitment plans in the wake of the British Chamber of Commerce (BCC) announcement that gross domestic product (GDP) in the second quarter of 2014 will hit the level seen in the first quarter of 2008. Its forecast for economic growth this year has been nudged up to 2.8% from 2.7%.
This is a welcome leap forward, as the BCC had originally predicted that the economy wouldn’t bounce back until 2016.
Is it for real?
The economic recovery is undeniably gaining momentum, as other good-news stories attest. We’ve already seen unemployment fall to 7.2% in the three months to January, from 7.7% a year ago.
We’ve come a long, tortuous way since the UK’s recession started in mid-2008 when the unemployment rate was about 5% or 1.6 million. By the end of 2009 it was almost a million higher at 2.5 million, or 8%, peaking at almost 2.7 million in 2011, its highest level for 17 years.
The recession also saw the economy shrink by around 5% in 2009, the largest fall in output since 1931. Manufacturing output was down almost 14% year-on-year at its worst point – the lowest since 1979/80.
Fingers crossed, the jobs recovery is holding steady. The Office for National Statistics (ONS) said the number of people claiming benefits fell by 34,600 in February, which is more than the forecast of 25,000 in a Reuters poll of economists.
In another promising sign, wages are predicted to grow above the level of inflation from the middle of this year.
And more to the point, there’s a bit of a shine around UK businesses, with many starting to expand and create jobs.
The ONS says the private sector alone has created 473,000 jobs in the past year – excluding the effects of the privatisation of Royal Mail.
The manufacturing sector is particularly active, with business confidence hitting its highest level since before the crash, according to a recent Markit/CIPS Manufacturing Purchasing Managers’ Index. It showed that UK manufacturing has expanded for 11 consecutive months and that jobs growth in the sector rose at its fastest rate since May 2011.
Just announced, for instance, is that Siemens is to invest £160m in wind turbine production, creating 1,000 new jobs at Green Port, Hull and Paull, East Riding. What’s significant is that the German company has revved up its original plans from just £80m and 700 jobs.
Elsewhere, postal giant TNT has created 500 new jobs in Liverpool, while tax cuts announced in the recent Budget are encouraging companies large and small to expand. Maersk Oil and BG Group, for instance, are slated to create 700 jobs, while the Bingo industry looks likely to add 375 jobs and save countless hundreds more.
Other Government initiatives announced in the Budget, such as energy reforms, should deter manufacturers from moving employment abroad. Extending Help to Buy on new-build properties and the proposed new garden city at Ebbsfleet will maintain increasing confidence in the construction sector, which has risen significantly in the past year.
Small businesses are also perkier. A report on business confidence from the Federation of Small Businesses (FSB) found that one in seven of the 3,000 companies surveyed intend to create jobs this Spring. Some 11% had already increased staff in the previous three months, with “above average” increases in the West Midlands and east of England.
Other promising FSB findings show that almost two-thirds of small firms expect to grow in the next 12 months, and one in four plan to increase the amount they invest in their business.
Back to reality
We’re told by economists that all this wonderfulness should hopefully become a self-fulfilling prophesy, with the boost to employment helping to propel economic recovery and vice-versa.
But some also remind us that the UK still has an excessive account deficit and that the long-term health of the economy is still in the balance.
Economist or not, it’s clear to all of us that more needs to be done to stimulate youth unemployment, which is not just high at 19.8% – it’s almost three times the UK’s overall jobless rate.