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.”

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
A new lease of life?

The drugs transforming old age

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues
Shale gas 'fracking' promises to transform Britain's energy market. Find out what it is, what it means, and how to invest.

More from MoneyWeek

FREE REPORT:
What you should really do with your money (2014 Edition)


How to buy and sell penny shares

A beginner's guide to investing in gold

How to invest in British fracking