Highlights
- UK recovery remains strong, despite recent easing in growth, driven by increases in exports and consumer spending
- More needs to be done to promote business investment
- Bank of England expects UK economy to grow faster during 2015
- UK unemployment expected to fall
- UK Inflation falls to all time low, and average earnings rise
UK Economic Review
Official estimates for Q4 2014 economic growth (GDP) show unrevised figures at 0.5%, the slowest rate of growth since Q4 2013. Despite this, the UKs recovery remains strong with exports playing a major role in driving growth: the UKs trade balance (exports minus imports) deficit narrowed from £13.1bn to £10.4bn in Q4. Consumer spending continues to help power growth, rising by 0.5% in Q4, the fourteenth consecutive quarter of growth.
UK business investment fell by 1.4% in Q4, the second successive quarterly fall and the biggest drop since Q2 2009. This fall can be partially attributed to weaker investment by the oil and gas industry, amid falling oil prices. More needs to be done to promote business investment and achieve better balanced growth
The Bank of England expects the UK economy to grow at a faster rate during 2015, compared to the previous year, with the central bank forecasting UK GDP growth of 2.9%, which if achieved would be the fastest rate of growth for nine years. UK economic growth has a good chance to regain stronger momentum in the medium term. The growth projections are supported by a strong jobs market, with UK employment rising by 103,000 in Q4.
CPI inflation fell from 0.5% in December to 0.3% in January, the lowest rate since records began in 1988, with the slowdown attributed to the falling cost of fuel and food. Average earnings rose by 2.1% in Q4 which means that wages have their biggest lead over inflation since April 2008: good news for the UK’s near term economic outlook.
Public-sector borrowing showed surplus of £8.8bn in January, largely driven by a sharp rise in tax receipts. Self-assessment tax inflows were up by 16% in January 2015 compared with the previous year. Despite the improvement in the UKs ability to generate tax receipts, these remain constrained by declining oil and gas production and the financial sectors reduced profitability.
Global Investment Outlook
US equity markets had a disappointing start to the year with GDP growth rising below expected levels. European equities rallied in January, with the euro weakening further and the ECB announcing a large-scale QE program.
Asian markets benefited from central banks easing monetary policies.
The information in this email does not constitute advice or a recommendation and investment decisions should not be made on the basis of it.
