Britain’s Weird Recovery

Written by Kathleen Packard
Monday, May 12, 2014

Britain is turning into this year’s European success story – albeit without much competition. “Britain's growth forecasts have been upgraded by the European Commission in another boost for Chancellor George Osborne’s economic policy,” wrote James Salmon of the London Mail.

In its latest health check of the 28 members of the European Union, it said growth in the UK was ‘broadening’ and becoming ‘firmly established’.

It now expects Britain’s economy to grow by 2.7 per cent this year, compared with a forecast of 2.5 per cent in February and 2.2 per cent in November.

Unemployment is expected to continue to fall from 6.9 per cent to 6.3 per cent by 2015, while an increase in confidence among firms will boost investment, the EC said.

The London Telegraph’s Szu Ping Chan noted, however: “The Government and Bank of England must act to curb mortgage lending or the recent surge in demand could see house prices spiral out of control, the Organisation for Economic Co-operation and Development has warned.

Earlier, after the British government released figures that the economy had grown 0.8% in the first quarter, Chancellor Osborne had said: “"Today's figures show that Britain is coming back – but we can't take that for granted. We have to carry on working through our long term economic plan...The impact of the great recession is still being felt, but the foundations for a broad based recovery are now in place."

The Financial Times’ Chris Giles had written back in February that “revisions to the UK national counts showed investment contributing more to the recovery that previously thought, but the trade side of the accounts barely improved. With a current account deficit of roughly 4 per cent of national income for the past two years, net trade contributed just 0.1 percentage points to the 1.8 per cent expansion in 2013, having removed 0.7 percentage points from growth in 2012.”

Still, Britain’s investment rate remains low compared to the rest of Europe.

In a review of Britain’s recent economic performance, the Guardian observed: “Britain's export performance improved during the downturn and subsequent recovery. Net trade – exports minus imports – was a drag on UK growth between 1997 and 2007, but that trend was reversed during the downturn and subsequently as the economy recovers, partly as a sharp fall in the pound between 2007 and 2009 made UK goods cheaper abroad.”

It further noted: ““Financial services are a key part of UK exports. Britain has the highest ratio of services exports to GDP in the G7, at 13%. It also has the biggest share of financial services exports by some way, at 29% in 2012. The second is the US at 15%, with Japan exporting the least at 3%.”

The Guardian noted: “UK household spending suffered the biggest fall in the G7 in 2008-09. Household spending in Britain fell 5.7% between the first quarter of 2008 and the third quarter of 2009. The ONS challenges the assumption that the UK recovery has been particularly reliant on consumer spending.”