Late summer bloom for UK’s economic rebound

ECONOMIC growth in the UK picked up pace in the three months to August, with strong expectations by business for the next quarter, the CBI employers’ body said in a report out today.
Picture: John DevlinPicture: John Devlin
Picture: John Devlin

However, the organisation said Britain faced some risks from the knock-on effect of the slowdown in China and other emerging markets, along with the resulting turbulence in stock markets.

A survey of more than 750 firms showed the rate of expansion headed higher for the second consecutive month in August, with the positive difference between those reporting higher volumes and those saying they were lower standing at 31 per cent.

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This was up from 20 per cent in the three months to July and the best rate since last May. The CBI survey covered the manufacturing, retail and services sectors, and the positive balance of businesses expecting volume growth in the next three months was unchanged from July at 27 per cent.

“The weather may have been a washout [in August], but the sun has certainly been shining on the British economy,” Rain Newton-Smith, CBI director of economics, said.

“The pace of growth has been energised across the sectors and it is good news that this is set to continue as we head into the autumn.”

However, she added that, although the domestic picture was brighter, UK exporters still faced headwinds “especially in light of a weaker outlook for global growth and the strength of sterling making them less competitive”.

Newton-Smith added: “Businesses will need to keep a close eye on turbulence in the markets, and whether it spills over into the real economy.

“The UK’s direct exposure to China is limited, but slower growth there and in other emerging markets has a knock-on impact on confidence around the globe, and could bear down on UK trade.”

Business and professional services – including accountancy, law and marketing firms – as well as retail made particularly large contributions to the expansion in business volumes in the three months to August.

However, the CBI said that manufacturing, now accounting for about 12 per cent of Britain’s economy compared with 30 per cent in the 1970s, remained broadly flat.

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“The latest data are consistent with our view that the outlook for the domestic economy remains solid in the second half of the year,” the organisation said.

Last week it upgraded its growth forecast for the UK from 2.4 per cent to 2.6 per cent this year and from 2.5 per cent to 2.8 per cent in 2016.

The CBI added that the continuing upturn, which has also been helped by interest rates at historic lows since 2009, would be powered by the “twin engines” of rising household spending and strong business investment.

Official data from the Office for National Statistics (ONS) on Friday confirmed an initial estimate that GDP lifted 0.7 per cent between April and June, up from 0.4 growth in the preceding quarter.

One City economist commented: “The domestic data for the UK has been pretty benign for some time now, and the CBI’s latest findings on growth and expectations mirror that.

“China remains an unpredictable element, but is still not a likely game-changer for the UK recovery.”