Confidence regained - UK recovery expected to strengthen
Britain’s economic recovery is expected to strengthen in 2014 as the world’s sixth-largest economy shrugs off fears over the sustainability of the upswing, according to a poll of economists. After three years of virtual stagnation amid an intense international debate over austerity measures taken by the UK government, the country’s economy was one of the few to beat expectations over the second half of 2013, when the recoveries in the euro area and Japan faltered. Several quarters of strong growth have spurred UK economists, largely caught out by the strength of the upturn, to become much more optimistic. A poll of 100 economists by the Financial Times adds support to the UK government’s decision to stick with its plans for fiscal consolidation in the face of sharp criticism from the International Monetary Fund earlier in the year. "UK growth should be strong in 2014. The speed-up of 2013 looks broad-based across sectors and sources of demand. The main reason to be optimistic is the shift in corporate mood," said Neville Hill, economist at Credit Suisse. The poll respondents’ optimism chimes with the Treasury’s most recent collection of private sector forecasts, published in mid December, which showed economists on average expect growth of 2.4 per cent for 2014 – up from their estimates of 1.4 per cent for last year. Subsequent upward data revisions raise the likely growth rate close to 3 per cent, many of the economists said. A slim majority of the economists polled said the upturn had vindicated chancellor George Osborne’s pursuit of austerity, which senior officials at the IMF had called for the UK to moderate, though many of the 100 respondents warned the chancellor against boastfulness. Despite its strong performance over the past year, the performance of the UK economy has consistently lagged behind that most of its rivals since the crash. Up until last year it was among the worst performers of the world’s largest Group of Seven economies. In contrast to the sour mood twelve months ago, most of the 100 respondents to the annual poll believed Britain’s recovery would gain ground over 2014. Even households, squeezed by high inflation and little pay growth, would begin to feel better off with wages rising faster than prices for the first time in years. Sushil Wadhwani, a former member of the Bank of England’s Monetary Policy Committee said: "There is catch-up potential in various components of demand that had been temporarily held back by several factors including perceptions of tail risk in the eurozone." The BoE’s decision to become the latest central bank to adopt forward guidance to markets and the public on when interest rates will rise was roundly panned by respondents. Respondents grumbled that the MPC’s pledge to keep rates low at least until unemployment hit 7 per cent was a mistake and that the sharp fall in joblessness in the UK would force the BoE to modify the policy. There was also concern that the recovery and government policies, such as the Help to Buy scheme, could stoke a housing bubble. Building more homes was the best way to counter any frothiness in the housing market respondents said. Some wanted the BoE to follow the lead set by New Zealand and a handful of Asian economies and impose bans on mortgages with low deposits. A yes vote for Scottish independence in the referendum set for the autumn was a potential stumbling block to recovery. Dhaval Joshi of BCA Research said: "It would be deeply ironic if the United Kingdom established fiscal independence with monetary union just as the euro area concludes that such a set-up is unworkable."