28th January 2014
The UK has posted growth of 1.9% in 2013. The Office for National Statistics has calculated that the economy grew by 0.7% in the final quarter of 2013. Though respectable, GDP remains below its pre-financial crisis and recession peak.
Manufacturing grew by 0.9% in the final quarter while the wider industrial sector grew by 0.7%. Today’s data means the economy has grown in four successive quarters for the first time since 2008. Growth rose by 0.5 per cent, 0.8 per cent, 0.8 per cent and 0.7 per cent in the four quarters of 2013.
Joe Grice, ONS chief economic adviser, said: “We have now seen four successive quarters of significant growth and the economy does seem to be improving more consistently.
“Today’s estimate suggests over four-fifths of the fall in GDP during the recession has been recovered, although it still remains 1.3 per cent below the pre-recession peak.”
Commenting on the figures, Azad Zangana, Schroders European Economist says: “Preliminary estimates for UK GDP growth in the fourth quarter of 2013 showed a strong end to the year. Growth in the three months to December compared to the previous three months was 0.7% meeting consensus expectations for the quarter. The figures confirm that 2013 was the strongest year of growth at 1.9% since 2007, and help confirm that the UK is close to completing its recovery.
“Within the figures, 87% of the growth in the fourth quarter came from services, most of which from the business services and finance sub-sector. Industrial production made a positive contribution, however construction made a slightly negative contribution to the headline figures.
“Overall, the latest GDP figures show that 2014 will have started on the back of strong momentum. The pick-up in business services activity suggests corporate investment may be on the rise. Meanwhile, stronger retail sales reflect the rise in housing related activity and employment. Our concern is that the recovery continues to be heavily skewed towards retail and services, and has funded more debt. The lack of productivity growth over the past year makes it difficult to argue that wages should be rising much more than inflation. However, Q4 is likely to have been the third consecutive quarter of above trend growth for the UK, which will prompt a greater debate on whether it is time to raise interest rates to more normal levels. The Bank of England must provide further analysis and guidance in the February Inflation Report as to the future path of monetary policy.”
Implications for sterling
Andy Scott, associate director of FX advisory services at foreign currency specialists says: “Sterling saw slight gains on Tuesday morning following release of GDP growth figures for the last quarter of 2013, which came out exactly as forecasted at +0.7% for the quarter and 2.8% for the year. This was the fastest pace of growth since before the financial crisis as a combination of improved confidence, credit availability, employment growth and house price gains saw the U.K. economy buck the weak trend of European economies last year. It also demonstrates the Government’s ability to turn the economy around, whilst getting a grip on the country’s vast budget deficit.
“The reaction in sterling, which dipped initially, signals that the market has begun to expect U.K. economic data to surprise on the upside, which it did across a number of releases in the second half of last year. We’re expecting the economy to maintain a similar pace of economic activity this year as domestic demand continues to improve and overseas markets, particularly in the euro zone, start to see some growth after a very difficult 2013.
“There remain a number of ‘headwinds’ faced by the economy such as stresses in the euro zone banking markets that could see the ECB forced to act, or a slowing growth rate in the world’s second largest economy, which has been a big buyer of luxury British brands. However, we look to be on a stronger footing now and therefore able to withstand some of the drags on demand without having to fear the economy contracting. Sterling’s value should reflect this positive economic backdrop as it continues to recover from the financial crisis sell off that saw it depreciate by around 25% against many major currencies.”