10th June 2013
A leading economic indicator has revealed that UK growth continued to rise through April, further boosting hopes of a sustainable recovery writes Philip Scott.
The Organisation for Economic Co-operation and Development’s (OECD) leading indicator for the UK climbed to 100.8 in April, a modest rise from 100.7 in from both March and February and 100.6 in January. The indicator which was has risen steadily since May last year is now pointing to growth close to its trend rate.
In fact, survey evidence for May for the UK has been markedly firmer not only overall but across a wide range of sectors of the economy. As a result, economic consultancy, IHS Global Insight has upgraded its UK GDP forecasts modestly from 0.8% to 1% this year and to 1.6%, up from 1.4%, in 2014.
Howard Archer, chief UK & European economist at IHS Global Insight says: “The recent improvement in a wide range of indicators suggest that the UK economy may finally be gradually moving to a firmer footing and it could be particularly significant that the improvement in the survey evidence for May occurred across a number of areas.”
Leading growth indicators including the purchasing managers’ survey for the dominant services sector showed activity at a 14-month high in May with the new business index at a 39-month high. The corresponding manufacturing survey indicated a second successive month of expansion with activity at a 15-month high while the construction survey showed the first growth, albeit modest, since last October.
In addition, consumer confidence rose markedly in May to be at equal highest level for two years, while the British Retail Consortium’s survey showed retail sales up 3.4% year-on-year in May. Further good news saw car sales climb 11.0% year-on-year in May while both the Halifax and the Nationwide reported a moderate increase in house prices.
Archer continued: “The hope is that this will fuel a sustainable improvement in business and consumer confidence, which in turn encourages businesses to invest and employ more, and consumers to spend more.”
Experts also believe the modestly improving housing market should also be helpful to growth prospects, while employment is still at an elevated level despite the labour market showing some signs of faltering early in 2013.
“Nevertheless, there are still significant headwinds to growth which suggest that the economy will remain prone to losses of momentum and that overall growth will still be limited. Tight fiscal policy, still restrictive credit conditions and relatively weak and stuttering global growth currently remain significant constraints to UK growth prospects while consumer purchasing power is limited due to very low earnings growth and recently higher inflation,” adds Archer.
In terms of how this is translating in the market, the UK’s benchmark index, the FTSE 100 has lost some ground over the past month, down 3%, following a strong rally. But over the year it is up 18%, and has put on 8% of that in the past six months.
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