Solid UK economic performance, but stumbling blocks on the horizon

Last quarter, the UK economy grew at a quarter-on-quarter rate of 0.7 per cent, which is down on the growth of 0.9 per cent seen in Q2 2014. Compared with the same quarter a year ago, GDP is 3 per cent higher, though. 

A new report from the Cebr comments that while growth has slowed, there is still a respectable rate of economic expansion, and it comes despite significant weaknesses in the Eurozone, uncertainty over Scottish independence and other geopolitical factors such as the Russia-Ukraine conflict.

In Q3 2014, output increased by 0.7 per cent in services, 0.5 per cent in production, 0.8 per cent in construction and 0.3 per cent in agriculture.

“Economic growth remains fairly broad-based,” says the Cebr report. “Output increased in all four main industrial groupings within the economy, and a lot of other UK economy indicators have been positive in recent months too.”

Indeed, unemployment is down to 6 per cent, and the latest data shows the largest year-on-year decline in unemployment on record.

Can it last?

“The key question is how long this performance can persist amid a weakened global economic environment. Leading indicators suggest that the economy could slow further in the last quarter of 2014 and into 2015,” writes the Cebr, pointing to the YouGov/Cebr Consumer Confidence Index, which shows a significant decline in confidence.

Yet the think tank forecasts that the UK economy will grow by “about 3 per cent” this year, with growth slowing to 2.3 per cent in 2015. 

 “[It is] a slowdown, but certainly not disastrous, with the UK remaining one of the best-performing developed economies. Low inflation will support household spending even as earnings growth remains weak, which should be a significant boost for the consumer side of the economy.”

Areas of concern

The two major areas of concern for next year are exports and the fiscal deficit. 

“The parlous economic situation in the Eurozone means that an export-led recovery remains elusive, so expect some terrible trade and current account figures in the coming months,” says the report. 

“The fiscal deficit remains high and the incumbent government is increasingly losing credibility on dealing with it as spending remains high and tax receipts are growing slowly. 

“There’s a real risk of markets losing faith in the UK’s deficit reduction plan next year – particularly if, as is looking increasingly likely, there’s a messy outcome at next year’s general election.”

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