Looking back, for a moment, over the last twelve months or so we have seen periods of the fastest growth since 2007. The UK economy grew by 2.6% during 2014 – the biggest growth since 2007 and far better than the 1.7% growth in 2013.
The downside is that the growth in the few months has at best been marginal and we are now seeing deflation rather than the c2% inflation that the Bank of England would have hoped for. Various economists have different views whether this dip will be temporary or not. Recently the Governor of the Bank of England, Mark Carney, has said that he expects inflation to step back up to the 2% target within 1-2 years. Some economists are reporting a slow-down in the construction sector where 2014 was the best year for many years and worth some £112bn; hopefully an increase in house building will help.
The International Monetary Fund (IMF) forecasts UK growth of 2.7% in 2015, whilst others are suggesting growth could be closer to 3%. The UK economy grew 0.3% in the first quarter of 2015, the disappointing outcome being the effect of rising imports and a slowdown in the services sector. The BoE expects this figure to rise to 0.4-0.5% when all the data is fully analysed.
The fall in petrol and diesel prices is welcome in every household along with an expected fall in energy costs certainly in the short term. Supermarket deals and increased competition is helping with those household bills. It seems that the UK recovery will continue to be gradual during 2015. Much of the recovery it seems is the result of increased retail and consumer spending.
For those travelling abroad the sterling exchange rate is favourable giving us a little more in our pockets. Whilst the UK is growing faster than some within the Eurozone we are lagging behind the USA.
It is not quite a month since the General Election and undoubtedly there will be hard decisions to be taken to solve the issue of public sector spending, devolution and our continued membership of the EU. There are some indications that many will see pay rises this year, something many have not seen for at least a couple of years.
Latest news shows that UK car production had dropped in April mainly the result of far fewer exports – there was an increase of some 11% in new car sales for the domestic market.
The Bank of England is less optimistic about our recovery than it was a couple of months ago. The BoE has revised (negatively) its projections for the recovery in GDP, productivity (or output per hour worked) and living standards. If not quite pessimistic it is being somewhat cautious. Furthermore, the Governor of the Bank of England has warned, the uncertainty of our future EU membership might deter big multinationals from investing here with some suggesting they may move their HQ away from the UK.
One of our problems seems to centre on productivity where we have seen very little change since pre 2008. We have low unemployment and high levels of new jobs, we often work long hours (many more than 20 years ago) yet we are unproductive; we produce less per hour than Germany, USA and even Italy.
Alan Fletcher 30 May 2015