7/27/2019 SEB report: UK recovery on firm footing
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United Kingdom economy: Recovery on firm footingWEDNESDAY
OCTOBER 9, 2013
After near zero growth last year, the UK economy has recovered
in style this year. Real GDP hasrisen 1 per cent in the first half
of the year and indicators suggest even stronger momentumin the
second half of the year, which is why we are maintaining our
above-consensus view fromthe August issue of Nordic Outlook. After
a 1.5 per cent real GDP increase this year, our forecastis for a
pick-up to 2.3 per cent in 2014 and to 2.6 per cent in 2015.
Meanwhile the Bloombergconsensus is 1.3 per cent, 2.0 per cent and
2.4 per cent in 2013-2015 (Chart 1).
Our activity indicator (Chart 2) points to 1 per cent
quarter-on-quarter growth in Q3, thusexceeding the 0.7 per cent
quarterly rise in Q2. Moreover, the CIPS/Markit surveys (Chart 3)
onmanufacturing, services and construction are all at healthy
levels, suggesting a broad-basedrecovery. Meanwhile consumer
confidence (Chart 4) has climbed to its highest level sincebefore
the Great Recession.
After having stagnated deflated in real terms for three years,
British home prices (Chart 5)have increased 5-6 per cent in nominal
terms since last October. Real earnings (Chart 6) are stillfalling,
but consumer spending growth (Chart 7) has rebounded, accounting
for about half ofthe real GDP growth seen thus far in 2013.
Meanwhile the savings ratio (Chart 8) has fallenanew below its
historical average and household deleveraging (Chart 9) has
levelled out developments which the better tone of the housing
market may well partly explain.
Productivity (Chart 10) has completely stagnated since 2007.
While some of the shortfall maywell be permanent in nature, the
output gap (Chart 11) is estimated at 4 per cent of GDP in
2013,
which is the widest for at least 30 years. A pick-up in
productivity in the years ahead means thatabove-trend GDP growth is
unlikely to translate into particularly strong employment
growth(Chart 12) although near-term employment indicators (Chart
13) are positive. Meanwhile ourforecast is for the unemployment
rate (Chart 14) to drift slowly downward and hit 7 per centlate in
2015 at which point the Bank of England will consider raising
interest rates. Inflation(Chart 15) has been above target since
November 2009 but will be close to target in 2014-2015.One factor
worth keeping an eye on, however, is money growth (Chart 16) which
is no longerfalling.
Mattias Brur
SEB Economic Research
Key dataPercentage change
2012 2013 2014 2015
GDP* 0.2 1.5 2.3 2.6
Unemployment** 8.1 7.9 7.6 7.3
Inflation* 2.8 2.6 2.3 2.0
* Percentage change, ** Per cent of labour force,
Source: SEB
