Britain's economic rebound gathers pace

Britain’s economic data continues to beat expectations, but are we in danger of overheating?

Britain's economic data continues to beat expectations. An index tracking activity in the service sector rose to its highest level since May 1997 last month.

A sub-index tracking employment in the sector is close to a record high, pointing to robust job growth. A survey covering activity in the construction sector reached a five-year high.

House prices are climbing at an annual rate of 6.9%, according to Halifax. Car sales rose for the 20th month in a row and business confidence has reached a ten-year high, according to an index developed by the Institute of Chartered Accountants. Industrial output was 2.2% up year-on-year in September.

What the commentators said

An interesting feature of this rebound, noted Jeremy Warner in The Daily Telegraph, is that there hasn't been much evidence of a sustained bounce-back in manufacturing, despite the plummeting pound. But manufacturing is worth only 10% of GDP, so this is "not ultimately where salvation lies". More encouragingly, there has been rebalancing in the service sector, worth 78% of GDP.

Financial services and public administration, two key areas pre-crash, have shrunk, while health, professional, business and support services have all grown strongly. Our creative, media and digital industries are all thriving. We may not make very much, but "in services, Britain is streets ahead of virtually anywhere else", said Warner.

Unfortunately, Britain's post-war experience shows that we're also streets ahead of other countries when it comes to generating high inflation. There are already some straws in the wind, such as the fastest pace of price rises in the services sector since May 2011, and the fastest growth in a measure of the money supply in almost ten years.

The latter "implies a lot more spending, sooner rather than later", said Allister Heath in City AM. The economy is showing signs of overheating even though it's not even back to its pre-2008 size.

The Bank of England should cool things off by hiking interest rates now. That would help ensure growth proceeds at a reasonable, sustainable rate. Otherwise, we risk a "mini-boomlet and bust, complete with a spike in inflation and another housing crash".

Recommended

Greensill, Cameron and the return of Tory sleaze
UK Economy

Greensill, Cameron and the return of Tory sleaze

The collapse of Greensill Capital threw a spotlight on political lobbying when it emerged that former PM David Cameron had been fighting its corner. J…
17 Apr 2021
Recovery Loan Scheme: the latest government aid package for small businesses
Small business

Recovery Loan Scheme: the latest government aid package for small businesses

The Recovery Loan Scheme will help companies weather the pandemic
16 Apr 2021
UK mid-cap stocks look forward to life after lockdown
UK stockmarkets

UK mid-cap stocks look forward to life after lockdown

The FTSE 250 hit an all-time high at the end of last week, as investors look to a post-lockdown recovery.
16 Apr 2021
House prices: from boom to even bigger boom
House prices

House prices: from boom to even bigger boom

UK house prices have risen to new to record highs, says Nicole Garcia Merida. Demand continues to outpace supply, but continued low interest rates, th…
9 Apr 2021

Most Popular

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
The FTSE 100 has clawed back above 7,000 – how much higher can it go?
UK stockmarkets

The FTSE 100 has clawed back above 7,000 – how much higher can it go?

The FTSE 100 index has risen to over 7,000 for the first time in over a year – it now sits just above where it was in 1999. But its era of neglect cou…
19 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021