UK to be ‘fastest growing western economy’ in 2014

January 2014  |  FEATURE  |  BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

The UK economy will grow by 1.3 percent in the fourth quarter of 2014, according to a report produced by Grant Thornton and the Institute of Chartered Accountants in England and Wales (ICAEW). 

The report, the UK Business Confidence Monitor (BCM), also shows that in the third quarter of 2013 the UK’s economy grew by 0.8 percent, registering a reasonably strong performance across all sectors. The joint Grant Thornton, ICAEW report also follows a preliminary report from the Office for National Statistics (ONS) which, based on 40 percent of available data, also suggests the UK economy grew by 0.8 percent in Q3 2013.

According to the BCM, confidence is beginning to return to many businesses across the UK. Indeed, the results of the survey noted that confidence has now increased for five consecutive quarters. Furthermore, the Confidence Index of the survey has reached its highest level in the 10 years that the study has been running. At the time of writing, the BCM Confidence Index stands at +31.7, up from +24.0 in the previous quarter. Most notably, confidence appears to have increased across all three main broad industry sectors – construction, production and the service industry. “Growth in business confidence is accelerating, key financial performance indicators such as reported turnover and profit are on the rise and expected to improve further,” said Scott Barnes, chief executive of Grant Thornton. “While still at lower levels than we would like to see, there are tentative signs that businesses are increasing the pace of their investment and export plans; both instrumental in achieving solid UK economic growth.” 

Respondents noted that turnover and profit growth both picked up during 2013 and are expected to continue to grow faster over the next 12 months. Turnover is expected to grow by 5.4 percent in 2014 compared to 4.2 percent in the preceding 12 months. Profit growth over the next 12 months will also see similar increases compared to the preceding year. Profit growth is also expected to increase by 4.7 percent in 2014, up from 3.5 percent in 2013. Michael Izza, chief executive of ICAEW, said “This quarter’s report shows that the UK economic recovery is well underway. If it continues at this rate, the UK economy will be one of the fastest growing economies in the western world going into 2014. As significantly, the shape of the recovery is changing as businesses respond to rising confidence by looking to new markets and increasing their investment plans. However we cannot be complacent and all of us need work hard to maintain the momentum built up this year while remaining alive to the threats to our recovery, especially those outside the UK.” 

The findings of the BCM are also supported by a survey carried out by the Federation of Small Businesses in late 2013. The Federation found that confidence levels among business owners and managers had doubled to a record high in response to the improving economic climate. 

Further highlighting the renewed sense of economic optimism, many businesses reported the strongest expected employment growth since the onset of the financial crisis. According to the joint study, many firms anticipate an average increase of 1.7 percent in headcount over the next 12 months. This expected growth was forecast by all sectors save for the banking sector and the City, both of which have shed jobs over the last year – a trend expected to continue in the near future. Firms also noted that turnover, profits and capital investments are all likely to grow throughout 2014. 

The Confederation of British Industry (CBI) shares the same sense of optimism as the ICAEW, Grant Thornton, the OECD and others. The CBI has increased its growth prediction for 2014, revising its previous quarterly forecast which was released in August. The CBI’s previous forecast saw the group predict that the UK’s economy will experience GDP growth of 2.3 percent in 2014. However, the predictions released by the CBI in November foresaw a growth rate of 2.4 percent in the coming year. Furthermore, the CBI also predicted a rebound in both business and housing investments. “The recovery that started in the service sector has fanned out to manufacturing and construction, and is shaping up to be more broad-based,” said CBI director general John Cridland. 

Despite the prospect of Britain’s recovery gathering pace over thecoming months, wage rises are likely to remain well below inflation according to respondents. “As the economy recovers, staff turnover and skills availability are becoming more of an issue. This is not, however, reflected in salaries, with growth of just 1.8 percent predicted over the coming year, well below current inflation levels,” the report said. This revelation has led some analysts to believe that living standards will fall for a sixth year after the financial crash. There can be little doubt, though, that the UK economy is heading in the right direction. The recovery, which has taken some analysts by surprise, is beginning to gather pace.

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Richard Summerfield