The UK is an advanced economy of more than 63 million people. In 2012, its GDP was approximately £1.6 trillion (US$2.5trn), making it the sixth largest economy in the world. Drawing on data sources such as the Economist Intelligence Unit (EIU), the International Monetary Fund (IMF) and the Grant Thornton International Business Report (IBR), this short report considers the outlook for the economy, including the expectations of 500 businesses interviewed in the UK, and more than 12,500 globally, over the past 12 months.
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63m people. In 2012, its GDP was approximately
£1.6trn (US$2.5trn), making it the sixth largest
economy in the world.
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Economist Intelligence Unit (EIU), the managers,
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the outlook for
the economy, including the expectations of 500
businesses interviewed in the UK, and more
than 12,500 globally, over the past 12 months.
Economy
Scott Barnes
CEO
Grant Thornton UK LLP
T +44 (0)20 7728 2428
E scott.c.barnes@uk.gt.com
www.grant-thornton.co.uk
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The UK economy appears to have turned a corner in recent months.
Austerity measures introduced in 2010 to rein in a budget deficit which
had climbed above 12% have weighed on growth, with many businesses
and consumers joining the government in deleveraging.
13.7%
However, stronger growth in the first
half of this year led forecasts to be
revised upwards although the economy
still remains around 2.5% smaller than
its 2008 peak. The eurozone and the
US remain key export markets but
10.7%
growth in demand for British goods
and services is being driven outside
of Europe54.6%
by economies such as 8.2%
China and South Korea.
• the economy expanded by 0.8% in
Q3, up from 0.7% in Q2 - a rise of
1.5% year-on-year
• the third quarter improvement was
driven by 0.7% growth in the services
sector, which accounts for around 80%
of UK GDP, whilst the construction
sector expanded by 2.5%
• industrial production rose by
0.6% between the second and third
quarters, driven by 0.9% surge in
manufacturing activity
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1.4%
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7.7%
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5.5%
6.1%
7.7%
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in 2014
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deficit stood at £3.3bn (US$5.3bn)
in September, with a goods deficit
in major markets
7.3%
of £9.8bn partly offset by a services remains a key
13.7%
surplus of £6.5bn; the trade deficit trade partner
in major markets
12.9%
widened from £5.5bn in Q2 to £9.7bn
7.3%
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in Q3
7.7%
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• the unemployment rate stood at 7.7%
8.2%
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2012
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2013 forecast
GDP growth
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4. 54.6%
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France
Source: IMF (2013)
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Focus on: UK 4
GDP growth
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decline over the next few years, although
7.7%
not as quickly as forecast at the beginning
of the present parliament, suggesting the
government’s fiscal austerity programme
has some way to run. The deficit is
expected to fall to 7.6% in 2013 and
again to 6.4% in 2014, reaching 5.1%
in 2017 but still well above the EU target
of 3%. And public debt continues to
rise, climbing to 85% of GDP in 2013
and 88% in 2014, before peaking at
91% in 2016.
The labour market remains complex.
Real wages remain around 9% below
2008 levels but private sector employment
has actually risen over the same period,
accountancy
suggesting that productivity has declined.
Whether existing workers, and those
expected to move into jobs as the
unemployment rate falls from 7.7%
in 2013 to 7.3% in 2014, can be used
more effectively, will shape the UK’s
growth trajectory.
global accountancy
Combined global
5.5%
forecast growth
in 2014
more than
which accounts for more than 40% of
7.0%
exports, provides further encouragement
although UK businesses have diversified
5.8%
away from traditional markets due to
regional stagnation in recent years.
Exports are expected to climb by 2.0%
in 2013, accelerating to 4.3% in 2014.
Investment fell by more than 14.0% in
2009 and is not expected to pass its 2008
level until 2016, despite increases of 1.1%
and 2.5% in 2013 and 2014 respectively.
Interest services
in financial rates are likely to remain at
record lows for some time with new
2012
Bank of England governor, Mark Carney,
indicating that a rise in the base rate will
not be considered until unemployment
falls to 7% as part of his policy ofglobal
‘forward
guidance’. A sharp rise in inflation might
see the BoE change its approach but prices
rises are expected to average 2.7% in the
Providing services for above the
short to medium-term, albeit
target rate of 2%.
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The end of recession in the eurozone,
Over
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7.3%
Growth forecasts for the UK have been revised upwards following a
13.7%
raft of positive data. The economy is now expected to expand by 1.4%
in 2013, rising to 1.8% in 2014. Despite fears that rising house prices 12.9%
could lead to another credit10.7%
bubble, there are encouraging signs that
the economy is starting to rebalance away from consumption,
7.7%
with investment and exports playing a greater role.
asset managers,
7.7%
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5.8%
Economic outlook
5.5%
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in Q2 2013
7.0%
7.7%
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58.9%
Economy
8.2%
expanded by
Focus on: UK
0.7%
.6%
GDP growth
10.7%
5. Focus on: UK
Business growth prospects
Following the dramatic rise seen in Q2, business optimism in the outlook for the UK
economy jumped again in Q3 following eight straight previous quarters stuck below
zero (i.e. net pessimism). The net 76% figure is an IBR record-high for the UK and
makes the business community the third most optimistic in the 45-economy survey.
Business leaders in the UK are now more optimistic than peers in Germany (51%),
Sweden (48%) and France (-17%), although all showed improvements over the past
three months.
As confident executives are more likely to take risks and invest, it follows that UK
business leaders are also increasingly bullish about the growth of their own operations.
In 2013, on average net 49% of UK businesses expect to increase profitability, up from
just 29% in 2011. Peers in Sweden (40%), Germany (30%) and France (19%) are far less
optimistic. The UK figure is still some way below pre-crisis levels but continues a steady
improvement over the last couple of years. The same is true as far as job creation is
concerned: net 31% of UK businesses expect to expand their workforces in 2013, down
from 37% in 2008, but up on the 18% recorded in 2011 and ahead of German (15%),
Swedish (14%) and French (6%) peers.
Net percentage of businesses optimistic for the
economic outlook (next 12 months)
Net percentage of businesses expecting to
see profits rise (next 12 months)
80%
UK
70%
80%
70%
60%
Germany
Sweden
50%
60%
Shortage of
finance affecting
15%
50%
UK
30%
40%
Sweden
20%
30%
Germany
10%
20%
40%
0%
10%
-10%
France
-20%
0%
-10%
-30%
of UK
businesses
France
-20%
-40%
-30%
-50%
Q4
2011
Q1
2012
Q2
2012
Source: Grant Thornton IBR 2013
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q2
2013
2007
2008
2009
2010
2011
2012
2013
Source: Grant Thornton IBR 2013
23%
Focus on: UK 5
6. Focus on: UK
Growth constaints
A lack of demand shot to the top of
UK business leaders’ concerns during
the financial crisis, peaking at 44% in
2009, albeit slightly lower than peers in
France, Germany and Sweden. Since
then there has been a gradual easing of
demand conditions, with 24% of UK
businesses citing a shortage of orders as
a growth constraint in 2013, level with
peers in Sweden. A lack of demand is still
more of a concern for UK businesses than
their German counterparts, but business
leaders in Germany have seen the issue
rise over the past 24 months, after an
initial steep decline in 2010 following
the financial crisis.
The issue of finance has been in the
headlines with the government pushing
schemes such as ‘Funding for lending’.
The IBR results suggest that access to
finance is far from the biggest concern
businesses are facing; indeed just 15%
of UK business leaders expect a shortage
of finance to constrain their ability to
grow their business over the next 12
months. This is only marginally above
levels seen in 2007-8 (11%).
Before the crisis, a lack of skilled
workers was a drag on expansion plans
for around a third of UK businesses. This
has fallen to less than a fifth today, around
half the level in Germany which has much
lower unemployment.
Shortage of
finance affecting
Percentage of businesses citing demand
as a constraint on their growth plans
49%
Sweden
44%
24%
24%
UK
15%
51%
of UK
businesses
58%
France
38%
70%
58%
Spain
49%
18%
Germany
54%
Italy
23%
of UK
businesses
expect to increase
exports
Source: Grant Thornton IBR 2013
2009
2013
Focus on: UK 6
7. Focus on: UK
Rebalancing the UK economy
Net percentage of businesses expecting to increase investment
in plant and machinery (next 12 months)
Commentators and politicians have stressed the need for the UK
economy to rebalance its economy away from consumption, towards
exports and investment – interestingly, the exact opposite of what the
new leadership in China is trying to do.
The view from business leaders in this
regard is positive. Net 40% expect to
increase investment over the next 12
months, which continues a steady rise
from 2009 to bring expectations back
to parity with pre-crisis levels. Even
German (37%) business leaders are
less optimistic in this regard.
The proportion of UK businesses
expecting to increase exports has actually
risen past pre-crisis levels indicating
that they have been able to expand their
horizons beyond the troubled eurozone.
Net 23% of UK business leaders expect
to increase exports over the next 12
months, up from 15% in 2008. Businesses
in Germany (21%), France (15%) and
Sweden (10%) are less hopeful.
However, the UK has some way to go
before it can compete with the German
export machine, which ran the largest
absolute trade surplus in the world in
2012. Tellingly, Germany tripled the
proportion of exports going to the BRIC
economies between 2000 and 2012 to
11.7%, a figure forecast to more than
double by the end of this decade. By
contrast just 5.6% of UK exports went
to the BRICs in 2012, although this
was up from 3.3% in 2007.
51
37
43
40
37
Shortage of
There is also room for improvement
32
23
finance affecting
in terms of international presence. Just
17
29% of UK businesses have operations
abroad, lower than rates in Germany
(46%), France (35%) and Sweden (33%).
More encouragingly,
2008
2008
2013
2008 2013 2008 2013
2013
the proportion planning new or further
international expansion was higher than
France and Sweden, with traditional
markets such Western Europe (57%)
Shortage of Net percentage of businesses expecting to see exports rise (next 12 months)
and North America (43%) joined by affecting
finance
Shortage of
emerging ones, such as the China (37%),
finance affecting 2008
15
the Middle East (32%) and India (30%),
high on the list of targeted destinations.
2013
23
15%
of UK
businesses
UK
Germany
Sweden
France
15%
15%
of UK
23%
of UK
businesses
expect to increase
exports
businesses
of UK
businesses
41
2008
21
2013
30
2008
23%
23%
2013
businesses
expect to increase
2013
of UK
of UK
businesses
exports
exports
10
24
2008
15
expect to increase
UK
Germany
Sweden
France
Source: Grant Thornton IBR 2013
Focus on: UK 7