Industrial production up in April, while business activity picks up pace across regions in May, reports Team IFM
London, June 17: The level of GDP growth in the UK has surpassed its pre-recession peak while its economy is set to grow by 2.9 percent this year, an independent British research body has said, even as a separate survey said business activity increased in all nine English regions during May.
Alongside, the government said on Tuesday, UK’s industrial production increased for the third consecutive month in April, propelling the annual increase to 3 percent, the most since 2011.
The National Institute of Economic and Social Research (NIESR) – the country’s longest established independent economic research institute – said Britain’s economy grew by 0.9 percent in the three months ending in May, compared with 1.1 percent registered in the three months to April.
In the process, it said in a statement on Tuesday, the growth rate was pushed beyond the pre-recession peak reached in January 2008. The US and Germany had in comparison scaled pre-recession output in 2010, reflecting the UK’s tardy pace of recovery.
A day earlier, NIESR released its quarterly forecast that said the economy would grow by 2.9 percent in 2014 and 2.4 percent in 2015, while unemployment would average about 6.5 percent this year with inflation staying close to the 2 percent target.
Moreover, on current plans, the think tank said public sector finances would enter surplus territory in 2018-19.
“This is a solid start to the second quarter,” David Tinsley, economist at BNP Paribas SA in London, told Bloomberg referring to the industrial production data announced by the UK Treasury the day NIESR made its statement.
“If manufacturing production went sideways in May and June, it would still be up 1.1 percent over the quarter,” Tinsley said. “And all survey evidence suggests a better performance than that is possible.”
In the meantime, according to the Lloyds Bank, business activity increased in all nine English regions during May while “solid growth” in private sector employment continued across England and Wales.
“Companies in England and Wales have been experiencing a sustained improvement in business conditions through the second quarter of the year,” observed Tim Hinton, Managing Director, SME and Mid-Markets Banking at the Lloyds Banking Group, in a recent statement.
PRE-RECESSION MARK
In its statement on Tuesday, NIESR painted a rosier picture of the UK’s economy. “Our monthly estimates of GDP suggest that output grew by 0.9 percent in the three months ending in May after growth of 1.1 percent in the three months ending in April 2014,” it said.
“By this estimate, the level of UK GDP has surpassed its pre-recession peak, and is approximately 0.2 percent above where it was in January 2008,” it added in a forecast for the UK economy, published in the may issue of the National Institute Economic Review.
After growing only very marginally in 2012, growth accelerated rapidly and is now running at around 3 percent year-on-year, NIESR said, forecasting a GDP growth of 2.9 percent this year, an upward revision of 0.4 percentage points on its forecast published three months ago.
“This means that GDP will exceed its previous peak in 2008 in the next few months, although per capita GDP still remains well below its previous peak, and will not exceed it before 2017,” it added. “We have also lifted our GDP growth forecasts for 2015 through to 2017 to about 2.4 percent.”
Similarly, NIESR said it expected real wages to grow this year, which are currently about 6 percent below their 2009 level. “We do not expect them to make up that lost ground until 2018 or so,” it added.
The research institution noted that unemployment rate had fallen by 1 percentage point in the past year, and that it expected it to drop to close to 6 percent from 2015.
“The corollary of robust growth in employment over the past few years, combined with economic weakness, has been a sharp fall in productivity growth. Indeed, since 2008 UK productivity performance has closely tracked that of Italy,” NIESR said.
On the basis of current government plans, the think tank said it expected a continued slow decline in net public sector borrowing this year, accelerating in subsequent years, and reaching an absolute surplus in 2018. Its forecast: the net debt to GDP ratio will peak in 2015–16.
NIESR also dubbed the UK’s trade performance as “disappointing” with the current account deficit running at about 4 percent of the GDP over 2012-14. The numbers would, however, improve subsequently as global economy continues to strengthen, it predicted.
BUSINESS CONDITIONS
Meanwhile, private sector output continued to grow across England and Wales in May, according to the Lloyds Bank Regional Purchasing Managers’ Index or PMI.
“Greater investment spending, rising consumer confidence and robust demand from the construction sector have contributed to business activity growth,” Lloyds said, quoting survey respondents.
It said output growth picked up to a five-month high across the English regions as a whole, with the index rising from 59.3 in April to 59.8 in May.
With a reading above 50 representing an expansion over the previous month, the latest data pointed to a strong overall rise in business activity, extending the current period of expansion to 19 months.
Across Wales the business activity index registered 58.2 in May, to signal growth for the 22nd month in a row. However, the index was down from 60.2 in April, the slowest rate of expansion since January.
Strong output growth across England and Wales was again supported by greater inflows of new work, with London maintaining its place as the best performing region in terms of new business growth.
Alongside, May saw increases in staffing levels among private sector companies across England and Wales, reflecting rising workloads and optimism about the business outlook. Job creation was strongest in the North-West, with the pace of employment growth reaching a survey-record high for the region, Lloyds said.
Meanwhile, average costs increased across England and Wales during May. Some firms cited higher staffing costs and greater raw material prices. However, inflation in the prices charged to customers remained relatively subdued.
“Greater investment spending, resilient consumer confidence and improving underlying economic conditions are all contributing to increased private sector activity,” Hinton of the Lloyds Banking Group said. “The solid rise in employment levels across all regions also bodes well for business confidence.”