UK economic engine remains healthy but growth likely to ease says OECD

8th September 2014

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The OECD’s leading indicator for the UK for the UK economy has moderated from its July total, suggesting that while the economy is likely to see growth slow, it still remains healthy.

The OECD, or Organisation for Economic Co-operation and Development, measure fell to 100.84 in July from 100.96 in June and a peak of 101.05 in both January 2014 and December 2013. The OECD leading indicator dipped 0.11% month-on-month in July after edging down 0.07% in June and 0.2% in May.

Howard Archer, chief UK & European economist at IHS Global Insight said:  “The recent slightly easing trend in the OECD leading indicator broadly ties in with our view that UK GDP growth will stay healthy but will edge back a little from the 0.8% quarter-on-quarter growth rate seen in both the second and first quarters.

“UK economic growth is currently dependent on robust domestic demand; and this seems likely to remain the case in the near term at least, with heightened geopolitical tensions hampering global growth prospects and the Eurozone likely to see only slowly improving domestic demand at best.”

In IHS’s September forecast, it stated that it anticipates that GDP growth will ease back modestly to 0.7% quarter-on-quarter in both the third and fourth quarters of 2014 and to then be broadly circa in a 0.6-0.7% range for a number of quarters. This is seen resulting in GDP growth of 3.1% in 2014 and 2.8% in 2015 it asserted.

Scottish independence question

IHS has cautioned however that there is the very real risk that a ‘yes’ vote for Scottish independence in the referendum on 18 September will weigh down markedly on UK economic activity in the near term at least, primarily through increasing uncertainty and damaging confidence, thereby dampening business investment and possibly consumer spending as well. Accompanying market volatility could also be harmful to the UK recovery.

Archer pointed out however that the latest data on the British economy remains largely strong, although mixed recently. Markit’s purchasing managers’ composite index for services, manufacturing, and construction output improved to a nine-month high of 59.3 in August from 58.6 in July and 57.8 in June (a reading above 50.0 signifies growth). Activity in the dominant services sector reached a 10-month high in August and construction activity was at a seven-month high, but manufacturing expansion moderated to a 14-month low. Meanwhile, although retail sales only edged up 0.1% month-on-month in July, survey evidence for August from the Confederation of British Industry was healthy and consumer confidence in August was at its equal highest level since early 2005 noted Archer.

He added: “Overall, we expect business investment to hold up well over the coming months following its recent marked improvement as confident and largely well positioned companies respond to the sustained improvement in economic activity. Companies’ generally healthy cash positions, improved overall profitability and likely easing credit conditions should support healthy business investment.”

 

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