UK economy to expand by over 3% this year

In addition to record-high business confidence, the YouGov/Cebr Consumer Confidence Index shows a rise in consumer confidence in recent months after plateauing towards the end of 2013.

Following concerns about the unbalanced nature of the economic recovery – consumer spending accounted for over 80 per cent of the growth seen last year – growth will spread more evenly as business investment grows strongly (by 10.1 per cent in real terms this year). 

Beyond the short term, though, challenges remain. Economic growth is likely to peak this year and fall back in 2015 and 2016 as some of the factors driving economic expansion at present, such as reduced saving and a return to typical levels of consumer confidence, wear off. In addition, the UK still faces a huge challenge in improving its trade position. 

Cebr expects a record-high current account deficit of £79bn this year, with the deficit remaining high throughout much of its forecast period. This deficit could lead to a depreciation of sterling going forward as markets become concerned about the persistence of this trade weakness.

Deep government spending cuts will also need to be implemented beyond 2015 if the Chancellor is to come close to meeting his deficit reduction targets beyond this fiscal year. Despite much rhetoric about austerity and “savage” spending cuts, the government has made little process in bringing down the total amount of government spending. 

Real government spending in 2014 is expected to stand 1.8 per cent higher than in 2010. Over the course of the next parliament, 2015-2020, we expect real government spending to decline by 2.1 per cent as spending cuts kick in. This will weigh on economic growth prospects in the outer years of Cebr’s forecast horizon.

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By Shané Schutte

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