Britain’s recovery picks up steam

The pound hit a near-three-year high against the dollar this week as reports showed that the British economy is still recovering sharply. A gauge of the manufacturing sector ticked up for the first time since November and remains close to a three-year high.

The service sector equivalent edged down marginally to 58.3, but that’s still the 14th consecutive month above 50, the mark that separates expansion and contraction.

A measure of employment in the sector rose to its highest level since records began in 1998. Crucially, revised GDP figures for the fourth quarter of 2013 also revealed a sharp bounce in business investment, up 8.5% on the year.

What the commentators said

Business investment is key to a long-term, sustainable recovery, said Markit’s Chris Williamson, and at last there are signs of it happening.

“Economic uncertainty and credit constraints have discouraged investment and expansion since the financial crisis struck, but the improved outlook at home and abroad means the environment is now more conducive to investment and risk-taking.” Investment has risen for four successive quarters for the first time since 2007.

Meanwhile, the ongoing recovery in Europe, Britain’s main trading partner, should underpin exports, also making the recovery less reliant on consumption.

However, prospects for consumers have also improved as falling inflation (below target for the first time in four years), is lessening the real wage squeeze of recent years. Some forecasters now expect GDP growth of 3% this year.

About time, said Hamish McRae in the Evening Standard, because we are still deep in the fiscal hole due to the economy’s poor performance in 2010-2012. By 2014-2015 the deficit was supposed to be down to £35bn. Expect £96bn instead.

We need three years of 3% growth to make a serious dent in our deficits. The “harsh maths” for the next government is that “we are only halfway along the path of fiscal consolidation”.

Merryn

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