The UK is ending what has been its slowest economic recovery on record with a marked acceleration in growth. Neptune’s forecast for UK GDP growth in 2014 is 2.5 per cent, up from 2013 growth of 1.8 per cent as estimated by the Office for National Statistics. When considering the changing UK macro outlook, three important questions remain:
1. What explains the recent acceleration in growth?
UK banking sector losses were concentrated in non-UK assets. Improving credit provision depended on deleveraging happening overseas, particularly in the eurozone. As external conditions improve, largely due to European Central Bank intervention, the UK’s banking system is recuperating and domestic financial conditions are easing.
We have also seen improvements in external demand among the UK’s biggest export partners. According to the latest IMF data, 55 per cent of the UK’s exports go to the EU and 11 per cent go to the US. Both regions are registering faster GDP growth and purchasing manager indices (PMIs) are in expansion territory.
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Paul Caruana-Galizia is an economist at Neptune Investment Management
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