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UK economy set for robust growth in first half of 2014



The Chancellor trumpeted strong economic growth in his recent Autumn statement, revising growth up to 1.4% from 0.6% for 2013 and from 1.8% to 2.4% in 2014. The stronger economic performance appears to be providing businesses with added confidence, and this month's Business Trends report mirrored the economic data and showed rising confidence for the tenth consecutive month, pointing to an economic recovery which will gather pace in the first half of 2014.

The BDO Optimism Index reached 103.1 in November, up from 101.7 in October, and now stands at its highest point since April 2010. Whilst this rise is impressive, a surge in new orders has caused a supreme rise in confidence in the manufacturing sector with the index rising to 115.3 in November from 109.6 in October. The reading is the second highest in the Index's history. Whilst the services sector rose by just 0.5 points to 100.4, it is now above the crucial 100 mark which indicates growth over the next six months is expected to pass its long term average.

Both the manufacturing sectors contributed to a rise in the BDO Output Index this month to 101.8, up from 101.7 in the previous month. The latest Markit/CIPS data showed that strong customer demand is helping to drive growth, and the Output Index backs up this data. Manufacturing rose to 108.1 (October 2013: 106.5) and services rose by a whole point to 100.4 (October 2013: 99.4). The Index now stands at levels last seen in the short recovery period in mid-2010 and is evidence that the UK's economic recovery is finally beginning to take hold in both the manufacturing and services sectors.

If this positivity wasn't enough, inflationary pressures are continuing to ease and the BDO Inflation Index recorded its lowest reading since December 2012. Wages were only 0.7% higher during July to September 2013 than one year previously, which successfully drove down cost inflation for labour-intensive firms in the services sector. Manufacturers meanwhile also benefitted from a materials and fuels processing price which decreased by 0.3% over the year to October 2013. The 2.3% fall in price also reduced price pressures on energy intensive manufacturing businesses.

The BDO Employment Index continues to to trail the broader economic recovery, but still rose to 98.3 in November from 98.1 in October. As the economy continues to recover, hiring intentions should remain on an upward trend and, with a falling unemployment rate (now standing at 7.6% over July to September 2013 - 0.2% lower than for the same period in 2012), businesses should become gradually more open to hiring new members of staff. However, with many businesses reportedly operating with spare capacity, the need to hire new staff may be slightly stifled.

After months of gradually improving fortunes, all four indices to appear to indicate that the key economic battleground has now shifted from austerity to helping businesses achieve sustained growth. There are clearly some hurdles still to overcome such as an underperforming education system, a dysfunctional planning regime and an infrastructure system in sore need of updating. However, with clear energy behind improving all these aspects, there is no reason that the UK cannot enjoy a return to the good levels of sustained long-term growth.


Source: BDO United Kingdom - link

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