Britain’s economic recovery gathers steam

The economy expanded by 0.7% in the fourth quarter of 2013, according to preliminary figures. The fourth-quarter figure marks a marginal slowdown from the previous three months’ 0.8%, but still means that GDP grew by 1.9% in 2013 overall, the highest annual pace since 2007.

The services sector, which comprises 75% of GDP, advanced by 0.8%; manufacturing by 0.9%. But is the recovery sustainable?

What the commentators said

Growth is finally “steaming ahead”, said Alex Brummer in the Daily Mail. But we still haven’t made up for the slump in output in 2008/2009. The economy shrank by 7.2% back then, and is still 1.3% below its pre-recession peak.

This is “plainly better than no growth at all”, said Jeremy Warner on Telegraph.co.uk, but it’s not “the sort of recovery we were hoping for”. This is a rebound driven by strong growth in London – much of the upswing stemmed from business services, finance and government – and consumer spending.

A declining savings ratio and a government-induced upswing in the housing market are behind the latter. It’s “unbalanced and unsustainable”.

Key components of a lasting recovery “are still AWOL”, agreed Phillip Inman on Guardian.co.uk. Business investment kept falling last year and export growth “has stuttered to a halt, leaving us with a persistent balance of payments problem before the country really starts to spend and suck in huge amounts of imports”.

Still, there are reasons to expect the recovery to become “less unbalanced” and hence more likely to last, said Capital Economics.

For instance, investment tends to lag growth; companies need time to become confident that growth is likely to endure. A recent survey of UK chief financial officers by Deloitte shows business optimism at the highest level in three and a half years.

The gradual recovery in Europe should underpin exports, while the latest surveys in the sector bode well. Exporters are also making progress shifting their sales towards faster-growing emerging markets. “The recovery,” concluded Capital Economics, “looks here to stay.”

66% off newsstand price

12 issues (and much more) for just £12

That’s right. We’ll give you 12 issues of MoneyWeek magazine, complete access to our exclusive web articles, our latest wealth building reports and videos as well as our subscriber-only email… for just £12.

That’s just £1 per week for Britain’s best-selling financial magazine.

Click here to take advantage of our offer

Britain is leaving the European Union. Donald Trump is reducing America’s role in global markets. Both will have profound consequences for you as an investor.

MoneyWeek analyses the critical issues facing British investors on a weekly basis. And, unlike other publications, we provide you with the solutions to help you turn a situation to your financial advantage.

Take up our offer today, and we’ll send you three of our most important investment reports:

All three of these reports are yours when you take up our 12 issues for £12 offer today.

MoneyWeek has been advising private British investors on what to do with their money since 2000. Our calls over that period have enabled our readers to both make and save a great deal of money – hence our position as the UK’s most-trusted investment publication.

Click here to subscribe for just £12