D:Ream in their 1994 No.1 hit said Things can only get better but is this true about UK plc?
Well, the British Chambers of Commerce (BCC) certainly thinks so and has sharply upped its 2013 growth forecast, saying the economy is gaining momentum. The business lobby group now expects GDP growth of 1.3% this year, up from 0.9% and it has sharply revised upwards its growth forecasts for the next two years.
There are however, a few clouds on the horizon which could negatively impact on the more positive outlook, notably those posed by the Eurozone, the Middle East and China’s slowdown. These factors wont derail the upward growth curve, but could well slow it down.
The services-led upturn that has become more and more evident in recent months comes after two and a half years in which the economy almost completely stagnated, with the unemployment rate, currently 7.8%, to fall to 7.5% of the workforce by the autumn of next year and falling below the Government’s target figure of 7% by the end of 2015.
The 7% figure is especially important as the Bank of England has said it would not raise interest rates until unemployment falls below this figure. The BCC now expects this to happen nine months earlier than the Bank’s own Monetary Policy Committee (MPC) does. The BCC has also praised the MPC for providing explicit advance warning of when interest rates might rise and has stated that this has helped provide businesses with more confidence to plan and invest.
The BCC have however warned that the rate of growth could be improved if the government did more to support the recovery by improving the access for fast-growth business to loans, providing financial support to the building of new infrastructure and by helping exporters gain access to foreign markets.
David Kern, BCC’s chief economist, said the UK’s export sector was already doing better than many realised, with the long-term trade deficit having halved in the last three years, thanks in large part to the sale of services overseas.
“While we would like to see more growth coming from investment and net trade, we should not be too concerned that consumer spending is helping to drive the recovery. It is better to rely initially on the consumer than to have no growth at all.”
But does this mean the end of austerity measures? Unfortunately, the answer is not yet as the government’s mastering of its finances continues to be a long and painful process; this is largely due to the fact that Tax receipts are still too low as a result of sharp falls in oil and gas reserves and the cuts in current spending are likely to be needed until 2019 at the earliest.