UK: Buoyant Outlook

The UK economy remained on course to record its fastest growth rate since the onset of the financial crisis in 2007 after Q3 2013 GDP growth was upgraded to 1.9% (y-o-y) from a previously-announced 1.5%. Furthermore, GDP estimates since Q1 2012 have been revised upward on the back of improved household consumption data. Consequently, GDP now stands only 2% below its pre-crisis peak. The economic recovery is set to gain further momentum in 2014, driven by the dominant services sector which rounded off twelve straight months of expansion by posting a PMI reading of 58.5 in December, reflecting a robust flow of new business and increased employment. The PMI for manufacturing, though, cooled to 57.3 in December, from 58.1 in November, underscoring the headwinds still exuding from the Euro zone. Still, many observers view this as only a temporary dip and expect the sector to continue its recovery this year. Manufacturing production stagnated in m-o-m terms in November, although our panel forecasts that it will recover in 2014. The recovery in construction is also set to continue over the coming months, spurred by a vibrant housing market. A strengthening economy, government incentives and record-low interest rates drove mortgage approvals to a five-year high in November, although the risk of a housing bubble, in the South-East especially, threatens recovery prospects. Recent data also showed that business lending slumped by 3.9% (y-o-y) in November, indicating that the recovery remains unbalanced and consumption-led.

Inflation edged closer to the Bank of England’s 2% target in November, easing to 2.1% (y-o-y) from 2.2% in October, due to November 2012 utility price hikes dropping from the index.


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