It’s the longest run of uninterrupted quarterly economic growth in the UK in 200 years (and as records don’t go back further - perhaps it’s the longest run since the invention of the wheel) and now the stutter and slowdown experienced last year and at the beginning of this seems set to be consigned to the history books, with the UK, according to at least one respected economic forecasting group, about to see an acceleration to above trend economic growth.
According to the latest BDO Stoy Hayward Business Trends report, published this morning, the UK is on course for 3.4% growth in the third and fourth quarters of this year, and yet inflation is likely to remain relatively subdued. And while it will climb above the Bank of England’s target 2% by the third quarter, it will only just go north of this key level, hitting 2.2%, or so predicts the BDO inflation index.
Perhaps the economy, could even save the Labour party’s blushes, as the embattled party of government can at least borrow a saying from Bill Clinton’s winning election team, and say of what really matters in politics: “It’s the economy, stupid.” Whether it’s been luck, skill, or a combination of inheriting policies put down by the previous regime and the benevolent conditions of the global economic climate, is a matter of opinion but the fact is the UK, under Gordon Brown’s stewardship, has been through the eye of economic storms and come out the other end, without growth ever going close to negative.
The monthly BDO report recorded its output index as having “bounced up by 2.3 points from 99.5 in January to 101.8 in April - its highest level since April 2004. This implies an economic growth rate of 3.4 per cent for the third quarter of 2006. The BDO optimism index, which relates to growth two quarters ahead enjoyed a similar good run.
Peter Hemington, partner at BDO Stoy Hayward, commented: “Short-term
confidence has risen to its highest level in over two years and it is good to see that medium-term confidence has stabilised at its highest point since last April. Businesses are responding by planning for better times ahead - stocks are being built up and capital expenditure looks set to rise in the coming months.”
Douglas McWilliams, chief executive of the Centre for economics and business research, added: “The Bank of England will be relieved to see the inflation index remaining at a level compatible with its target. But, with inflation showing no signs of falling significantly below two per cent, and oil prices still threatening, there is no suggestion yet that the MPC should consider interest rate cuts.”
The good news from BDO followed a week in which the Office of National Statistics revealed improving quarterly growth, hitting 0.6% in the first quarter of this year, compared to 0.3% a year ago; while the Item Club, from Ernst and Young predicted a 2.6% growth for 2006 and an impressive 3% next year.
But if we could be forgiven for cracking open the fizz to celebrate the UK’s predicted performance, perhaps in the US they should make sure its only vintage champagne they open, because while the UK gradually jumps up the economic growth scales, the US economy enjoyed a dramatic turnaround in the last quarter. According to the US Commerce Department, Uncle Sam’s economy grew at an annualised rate of 4.8% in the first quarter of this year, compared to a disappointing 1.7% in the finally quarter of 2005.
With oil moving north of $70, and then staying there, (the Telegraph, by the way, has predicted $100 per barrel price soon) it’s been an impressive run. Add to that the Fed’s recently acquired habit of upping the rate of interest every time it meets, and the word ‘remarkable’ may be better suited to apply to the US economic machine.
But with UK’s consumers still reigning in expenditure under the mountain of their debt, with the typical American even more indebted, and with the US as a whole still running a massive balance of trade deficit, the economic nirvana we are currently experiencing could still fall apart.
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