United Kingdom economy: Recovery on firm footing
OCTOBER 9, 2013
After near zero growth last year, the UK economy has recovered in style this year. Real GDP hasrisen 1 per cent in the first half of the year and
indicators suggest even stronger momentum
in the second half of the year, which is why we are maintaining our above-consensus view fromthe August issue of
. After a 1.5 per cent real GDP increase this year,
our forecastis for a pick-up to 2.3 per cent in 2014 and to 2.6 per cent in 2015.
Meanwhile the Bloombergconsensus is 1.3 per cent, 2.0 per cent and 2.4 per cent in 2013-2015 (Chart 1).
(Chart 2) points to 1 per cent quarter-on-quarter growth in Q3, thusexceeding the 0.7 per cent quarterly rise in Q2. Moreover,
the CIPS/Markit surveys
(Chart 3) onmanufacturing, services and construction are all at healthy levels, suggesting a
(Chart 4) has climbed to its highest level sincebefore the Great Recession.
After having stagnated – deflated in real terms – for three years, British
(Chart 5)have increased 5-6 per cent in nominal terms since last October.
(Chart 6) are stillfalling, but
consumer spending growth
(Chart 7) has rebounded, accounting for about half ofthe real GDP growth seen thus far in 2013. Meanwhile the
(Chart 8) has fallenanew below its historical average and
(Chart 9) has levelled out –developments which the better tone of the housing market may well partly explain.
(Chart 10) has completely stagnated since 2007. While some of the shortfall maywell be permanent in nature, the
(Chart 11) is estimated at 4 per cent of GDP in 2013,which is the widest for at least 30 years. A pick-up in productivity in the years ahead means thatabove-trend GDP growth is unlikely to translate into particularly strong
(Chart 12) although near-term
(Chart 13) are positive. Meanwhile ourforecast is for the
(Chart 14) to drift slowly downward and hit 7 per centlate in 2015 – at which point the Bank of England will consider raising interest rates.
(Chart 15) has been above target since November 2009 but will be close to target in 2014-2015.One factor worth keeping an eye on, however, is
(Chart 16) which is no longerfalling.
SEB Economic Research
2012 2013 2014 2015
GDP* 0.2 1.5 2.3 2.6Unemployment
8.1 7.9 7.6 7.3Inflation* 2.8 2.6 2.3 2.0
* Percentage change, ** Per cent of labour force,Source: SEB