UK recovery is back on track, experts suggest

UK recovery is back on track, experts suggest

A raft of positive data releases has renewed hope that the UK recovery is now in full swing.

Fears had been growing that the UK economy may have been slowing down, following economic growth of just 0.5 per cent reported for the final quarter of 2014.

However, economists at Capital Economics said purchasing managers’ index (PMI) figures, alongside other data, offered “mounting evidence the recovery gathered pace at the start of 2015”.

Article continues after advert

The PMI surveys for the construction, manufacturing and services sectors all indicated the sectors had expanded at a faster pace than expected in the first month of this year, rebounding after growth in all three sectors had slowed in December.

The trio registered strong expansion in January, with the services sector recording a reading of 57.2, construction at 59.1 and manufacturing at 53, with a reading of 50 denoting the threshold between expansion and contraction of the sector.

Samuel Tombs, senior UK economist at Capital Economics, said the data pointed to the fact that “early 2015 appears to have seen a renewed acceleration” in UK economic growth.

Mr Tombs said the data should “go some way to easing fears that the UK economy is on the cusp of a renewed slowdown” following the disappointing growth at the end of 2014.

The pick-up in growth could mean the UK maintains its place as the fastest growing nation in the G7 group of developed nations, with the economy predicted to have narrowly beaten the US’s growth figures in 2014.

The data also backed up James McCann’s contention that the slowdown seen at the end of 2014 had been a “temporary hiccup”.

The UK/Europe economist at Standard Life Investments (SLI) said the economy should continue to grow strongly from here on, with the “income-boosting effect of cheap oil” further supporting domestic demand.

He said: “This should combine with an improving labour market, loose monetary policy and confident consumers and firms, to generate a reacceleration in growth.”

Mr Tombs agreed that the low oil price should boost UK growth, although he added that the price drop had not yet fully fed through into the domestic economy.

He said the low oil price, combined with data suggesting that pay growth was strengthening, would likely lead to more disposable income for UK consumers, leading to higher expenditure and growth.

But both Mr Tombs and Mr McCann said the general election in May “looms large as a key uncertainty” for UK economic growth

“If the UK is unable to elect a stable majority government, we would likely see this weigh on sentiment and activity at home,” said Mr McCann.

“However, barring political deadlock or an external shock, the UK does look set to enjoy another year of strong growth.”