NEWS

Four reasons to believe that the British economy is on the road to recovery

The Office of National Statistics (ONS) has recently published much awaited information on GDP growth, business investment, employment statistics and inflation rates; a review of this statistical information suggests that the British economy is on the road to recovery. While one has to bear in mind that these figures do not represent every section of the British economy, they do hold the key to lot of other sectors and government plans to revive them. The critics may argue that not all the measures announced by the government have worked, there is certainly a suggestion that they have created optimism in the business climate.

GDP growth

The compilation of UK gross domestic product (GDP) data confirmed that the GDP increased by 1.7% in 2013 which is just short of the government’s estimated 1.8% target. It suggests that the UK economy grew by 0.7% in the final quarter of 2013 which was in-line with expectations.

GDP in terms of volume increased by 2.7% between Q4 2012 and Q4 2013 and 0.7% between Q3 2013 and Q4 2013, unrevised from the second estimate of GDP published on 26 February 2014. In the final three months of 2013, the ONS said "growth in the services industries remained the strongest contributor" to the economy, increasing by 0.8% during the period. The manufacturing sector also showed growth.

The chancellor’s upgrade of the growth forecast of the economy in the recent budget was the biggest in 25 years, as he revised the projections for borrowing. The Office for Budget Responsibility (OBR) - the Government's independent fiscal watchdog - revised up its forecasts for UK growth in 2014 to 2.7pc, from a December prediction of 2.4pc. Growth in 2015 was also upgraded to 2.3pc, from 2.2pc. At last year's budget, the OBR predicted the UK would grow by just 1.8pc in 2014.

UK expects a boost as businesses are preparing to invest £200bn in the UK

Buoyed by the latest forecast of the economy and the positive sentiments, UK businesses are planning to expand their base and preparing to invest £200bn in next few years.

Earlier this week the ONS released data estimating that in Q4 2013, business investment grew by 2.4% compared with the previous quarter and is 8.7% higher compared with Q4 2012. When compared with the previous quarter gross fixed capital formation (GFCF) is estimated to have increased by £1bn to £55.9bn.

A survey conducted by Deloitte accountants found 80% of companies with a turnover of more than £1bn intend to invest this year, with close to 70% earmarking at least £250m of investments to drive growth. GFCF and business investment have shown an increase in the last four quarters, the first in a decade and the survey estimates that businesses will invest up to £90bn in 2014, increasing in 2015 to £107bn.

The fall in inflation

Inflation has been one of the most contentious issue in the recession hit economy and a stumbling block to the economic measures announced by the government. The Office for National Statistics data confirmed that the inflation rate has fallen to a four year low of 1.7% and inflation measured by the Retail Prices Index (RPI) fell to 2.7% in February from 2.8% the month before.

The main driver of the fall in inflation was tumbling petrol and diesel prices which fell by 0.8p a litre between January and February, compared with a rise of 4p a year ago. The fall in inflation was further fuelled by the upward contributions from consumer spending in many sectors across the retail spectrum.

The falling inflation rates suggests that the pay rise and price increase gap is narrowing. Average total earning has risen by 1.4% with the public sector showing just 0.9% and the private sector at 1.7% suggesting it has already caught up with the price rise.

Prime minister David Cameron later tweeted "Our long term economic plan is helping provide stability and security for hard-working people."

Falling unemployment rates

Since the recession struck the British economy in 2008, soaring unemployment rates have fuelled the gloom and undermined the economic recovery. In recent past the unemployment rate reached as high as 9%, but sustained growth of the economy has seen it fall to a four year low of 7.1% with signs of further decline in the near future.

The ONS data suggested that the employment rate for those aged from 16 to 64 for October to December 2013 was 72.1%, up 0.3 percentage points from July to September 2013. There were 30.15 million people in employment aged 16 and over, up 193,000 from July to September 2013.

Across the British economy the total number of people out of work fell by 167,000 to 2.3 million and jobless benefit claims fell by 24,000 to a five year low of 1.25 million in December. After releasing these statistics, the employment minister, Esther McVey, said: "It's clear that the government's long-term economic plan to get people off benefits and into work so they can secure their future is proving successful.”