Home Business NewsEconomic News Forget what the papers say – here are 12 reasons the UK economy will boom again soon

Forget what the papers say – here are 12 reasons the UK economy will boom again soon

9th Apr 12 3:18 pm

Our economy is set to roar out of recession

Here’s a heretical thought: The UK economy is storming back to prosperity. In fact, if things carry on we’ll be back to 3 per cent growth pretty soon and all indicators will be pointing in the right direction. Even today things are pretty damn good.

Absurd? Well, most voters will tell you it is – the GfK index of consumer confidence in the economy over the next 12 months is at minus 30, indicative of mass national pessimism. Nationwide’s barometer of public confidence is low and falling.

Yet the data tells a different story, one of growth, job creation and low inflation. We really could be on the brink of a spectacular revival.

So if you want to start humming Rule Britannia and telling cynics that this sceptred isle is on its way back then are here are 12 cast-iron reasons you can reel off.

1 The economy is set to grow

The Office for Budget Responsibility, which provides the independent forecasts for the government, is forecasting real terms growth of 2 per cent next year, then 2.7 per cent and 3 per cent in 2015. Even this year growth will be 0.8 per cent.

2 Exports are up

Exports grew strongly in 2011, and hit a record high in October. Exports to BRIC nations are up 150 per cent in five years. (Read the latest The eye watering cost of eye health to the UK economy.) Exports to the Eurozone nations grew 11.3 per cent last year despite the ongoing crisis. There is a large number of high-perfoming sectors: for example, livestock exports are up 22 per cent on 2010, with the Far East being the fastest growing market.

3 We have the Pound…

…and not the Euro.

4 Jobs market is improving

Since December 2009 private sector employment has risen by 650,000 jobs – more than offsetting the net layoffs in public sector employment of 365,000. And what are the prospects for future hirings? Actually, a string of surveys suggests the rate of hiring is improving. The Federation of Small Businesses says there is a net balance of 1.2 per cent of small firms looking to hire. Looking long term the OBR forecasts employment rising steadily from 29.1m this year to 30m in 2016.

5 Savings ratio is back on track

In order to “detoxify” the economy it is necessary to recapitalise the banks and to reduce the appalling borrowing levels of consumers. This requires an increase in the savings ratio – the percentage of household income saved by consumers. During the 2000s the ratio was 4.3 per cent, indicative of the spend-and-borrow ethos of the Blair-Brown era. By comparison, the ratio during the eighties and nineties was 8.9 per cent.

At the start of the financial crisis in 2008 the ratio was a dreadful 1.7 per cent. Since then the rate has rallied. In the last quarter of 2011 the savings ratio was 7.7 per cent, a slight fall on the previous quarter, but undeniably in the right ballpark. Vicky Redwood of Capital Economics said: “Although the household saving rate nudged down in Q4, the back-data have been revised up a fair bit. So it now looks like households’ finances are in a bit better condition than before.” The detox is well underway.

6 We are in the right sectors

Ignore much of the blather about needing to “rebalance” the UK economy. It is, in fact, highly diverse with specialisms in precisely the right areas: pharmaceuticals, defence, nanotech, financial services, oil & gas, computer chips, hi-fi, computer games and mining. Our agriculture sector is world-class, and devoid of the terrible CAP-related problems facing Poland, France or Ireland. Our motorsport industry is larger than that of France, Germany and Italy put together.

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7 Services sector is recovering fast

The Purchasing Managers Index, which reflects the health of the services sector, rose from 53 in February to 55.3 in March. Any number above 50 indicates growth. Chris Williamson, chief economist at Markit which compiles the PMI, said the data suggests the UK economy grew by 0.5 per cent in the first quarter, contradicting fears we slipped back into recession.

8 Public sector borrowing is falling

The biggest challenge of this parliament is to cut the difference between tax revenue and state spending. In 2011-12 the government borrowed £137bn to cover the shortfall. By 2016-17 this will have fallen to £21bn according to the OBR, or 1.1 per cent of GDP.

9 Inflation is low, and falling

In 2011 the Consumer Price Index hit 4.5 per cent. Cue panic! But this figure was partly due to high commodity prices and the VAT rise. The CPI is forecast to fall to 2.8 per cent this year and then stay at 2 per cent for the next few years – the ideal scenario.

10 Government borrowing is absurdly cheap

When Labour left office lenders were asking 4 per cent to lend to the UK government. Now the effective rate of interest on 10-year gilts is a shade over 2 per cent. This matters. The two percentage point fall equates to a saving of £43.2bn over the next five years.

11 The size of the state is shrinking

When the state gets too big it squeezes out the private sector, causing economic stagnation. In the noughties the government grew 53 per cent in real terms – the biggest expansion by a developed economy excluding war and socialist revolution. In Northern Ireland and Wales public spending reached more than 70 per cent of GDP, and 64 per cent in the under-performing North-East. Now the bloatage is deflating. The government will decline from 48.4 per cent of GDP in 2011 to 39 per cent in 2016-17. Still some way short of Hong Kong’s 17 per cent. But a welcome start.

12 Brits love entrepreneurs

While the French are wondering whether to vote for a guy who wants a 75 per cent top rate of tax (Francois Hollande, currently bookies’ favourite) or his rival who wants a 100 per cent rate (Jean-Luc Mélenchon, admittedly an outsider), the UK has cut the top rate and offers a raft of incentives to start-ups. Our universities are hot-beds of ambition. And we have the strongest investment environment of any European nation, ranking #1 for private equity by a considerable distance. Overall, the World Bank ranks the UK as the easiest place in the world to borrow money. Together, entrepreneurs and finance are the most powerful engine economic prosperity. And on both counts Britain is up there with the very, very best.

Like this? Try…

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