Posted on: 13 July 2015
With the General Election now fading into a memory, short-term
political uncertainty appears to have faded as well. Issues like
the EU referendum and the devolution of more powers to Scotland are
still bubbling away in the background, but the consequences are
probably too far in the future to affect confidence today, so
recent economic data has enjoyed a short-term fillip.
Underpinning this relatively halcyon picture is the fact that
British consumers are enjoying a particularly encouraging
combination of advantages not seen since the 1990s: low inflation,
falling unemployment and a tentative pick-up in wage growth. This
is very positive for consumer confidence, which hit a 15-year high
The construction sector is also upbeat, with confidence rising
since the Conservative election win. House building is one
important reason for this, as the number of new houses registered
from March to May was up by 15% on the same period last year. The
Government is also expected to introduce further measures to boost
house building, to narrow the gap between what the country needs in
terms of new homes and what is currently being built. Manufacturing
and exports, however, remain more subdued, with the strength of
sterling against the euro causing some difficulty.
The UK is therefore relying on its old stalwarts of consumer
spending and housing to drive economic growth - but in the medium
to longer term there are some factors that may upset this benign
backdrop. First, the Government is planning significant cuts to
spending as it attempts to bring the budget back into balance.
Secondly, interest rates should eventually go up, although fiscal
tightening may stay the hand of the Bank of England for fear of
placing too much pressure at once on the economy. Finally, the UK
still has one of the worst productivity records in the developed
world - i.e. output per hour per worker is
very low - so the economy cannot grow very fast without generating
We would argue that these are mere obstacles and hurdles to be
overcome. They seem unlikely to lead to recession. However, they
may mean that in due course economic growth will begin to slow from
the current level of c.3%.
To read more news articles,
please click here.
All data has been compiled by Duncan Lawrie from sources believed
to be reliable. Full details of sources are available on
Information provided in
the above articles and any opinions expressed are for general use
only. You should always take specific advice to suit your personal
circumstances before taking any action. Errors and omissions
The value of
investments and income generated may fall as well as rise, and
investors may not get back the amount invested. Past performance is
not a reliable indicator of future results.