Recovery Gaining Pace
BMI View: The UK economic recovery is steadily gaining momentum following several quarters of anaemic growth. Stabilisation in the eurozone and an improvement in private sector confidence will pave the way for a recovery in global demand and international trade, which will bolster the UK economy in 2013. We are comfortable with our 1.1% real GDP growth forecast for this year and 1.4% in 2014, with the risks increasingly tilted to the upside.
Having struggled to secure a firm footing in recent quarters, the UK economic recovery is finally showing some vigour. A burst of positive macro surprises, across both the industrial and service sectors, coupled with a stabilisation in private sector confidence, should propel economic growth higher in 2013. Much is predicated on enduring stability in the eurozone following the turmoil of 2012, which had severely damaged household and corporate spending plans. While we continue to caution of unstable imbalances at the heart of the single currency area, we believe that the efforts of the European Central Bank to backstop the periphery bond markets have quashed speculation of the euro disintegrating, which in turn has provided a welcome boost to global demand. With the government relying on both exports and investment to drive the economic recovery at home, the tentative turnaround in international trade and stabilisation in the eurozone provide powerful tailwinds for the UK economy.
Confirmation in the first quarter that the UK economy avoided recession was the starting point for a spate of positive economic data releases. Real GDP expanded by 0.3% in Q113 compared to the same three month period a year earlier and 1.2% on an annualised rate. Historical revisions to the GDP time series published by the Office for National Statistics have been a mixed blessing. While a favourable upward revision eradicated the mini double dip recession over Q411-Q112, the 2008-2009 recession is now estimated to be worse than previously thought. This means that the UK economy is now even further from the pre-crisis trend, upping the pressure on the Bank of England, and its new governor Mark Carney, to adopt more aggressive and unorthodox measures to return the economy to a higher growth trajectory.
|From Headwinds To Tailwinds|
|UK - Real GDP Growth (%) & Expenditure Contributions (PP)|