Happy days: UK growth, unemployment on the up, trade deficit down

Britain may be underwater, but economic forecasts are buoyant. If only real wages were so peppy.

by Rachel Savage
Last Updated: 14 Mar 2014

As the rains come down and the floods come up, various institutions are having a go at brightening our days with another round of sunny economic forecasts...
 
The economy could grow by 1.5% in the first quarter of this year alone, accountants Grant Thornton and the Institute of Chartered Accountants in England and Wales said this morning. That’s over double the 0.7% growth in the last three months of 2013, so seems a tad optimistic, but hey – what’s a bit of far-fetched forecasting when you’ve been down in the economic doldrums for so long? What's more, the two groups added that business confidence was also at a record high. Hurrah.
 
A more cautious prediction came from the National Institute of Economic and Social Research (NIESR), which forecasted 2.5% economic growth this year, up from the 2% it expected in November and a whisker above the 2.4% Office for National Statistics' and IMF's estimates.
 
The think-tank predicted unemployment will fall to 6.6% by the end of the year, below the 7% that Bank of England governor Mark Carney said could trigger a cranking up of interest rates from their record lows (which he originally expected would happen in 2016). The jobless rate fell to 7.1% in the three months to December, but the Canadian (and his band of merry men, aka the Monetary Policy Committee) dug their heels in this week, holding the rate at 0.5%.
 
‘The surprisingly rapid fall in unemployment raises questions over the credibility of the Bank of England’s forward guidance; it remains unclear how this will be resolved,’ the NIESR said.
 
All eyes will be on the bank’s Inflation Report next month then, but the economy’s expansion and rising employment isn’t as simple as it seems. As the NIESR pointed out, consumer spending and the booming housing market are driving the increased growth, while exports are still held back by our depressed continental cousins (although government figures out this morning suggested the trade deficit fell by more than £2bn to £7.7bn in December - so perhaps that particular pressure is beginning to ease off).
 
Companies are sitting on a record mountain of cash, and don't look like investing it any time soon. Real wages are also stuck at their 2004 levels, and are unlikely to get back above their 2009 peak until the end of this decade, Simon Kirby, the think tank’s top research bod told the Telegraph.
 
If wages aren’t keeping up with prices then all this froth has to come from debt, and look where that got us last time. Given that low interest rates are keeping loans relatively cheap, Carney might need to think about starting to turn the easy money tap off soon. Happily though, individual insolvencies are at their lowest level in eight years, according to government figures. MT hopes it stays that way…

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