Has the UK's economic recovery finally arrived?

published 13 June 2013

Analysts have begun to raise their 2013 growth forecasts as the data has continued to improve. A survey of the services sector (worth 75% of the economy) jumped to its highest level in over a year in May, helped by the fastest rate of new business growth in over three years. The construction and manufacturing sectors have also returned to growth. Industrial output expanded for the third month in a row in April. Consumer confidence has reached a six-month high and overall consumer expenditure expanded by an annual 1.3% in May. The labour market has improved slightly, with the claimant count easing to a two-year low.

What the commentators said

This is the first time in three years we've seen a couple of successive quarters of reasonable growth rates that don't reflect one-off factors, added Capital Economics. After growth of 0.3% in the first quarter, the April-June period should see growth of almost 0.5%. But that's hardly anything to get excited about the latest modest improvements have only been so widely trumpeted because things were so bad before. And there's a long way to go. According to the National Institute of Economic and Social Research, output is still around 2% below its 2008 peak and won't exceed it until 2015.

Meanwhile, it's hard to see a self-sustaining upswing beginning in the near future. As Nida Ali of the Ernst & Young ITEM Club notes, "the eurozone is still our biggest export market and weak demand will continue to restrain exports". The government's fiscal squeeze continues and with earnings growth far below inflation, consumers' real incomes will remain under pressure for some time. In short, said Capital Economics, "don't get too carried away".