UK economy strengthens as services exports leap

It's a fantastic start to the new year and confidence is high, says British Chambers of Commerce

Economic growth accelerated again in the final quarter of 2013, according to a survey of businesses by the British Chambers of Commerce.

In its quarterly economic survey to be released today the BCC says GDP is likely to have expanded by 0.9 per cent in the final three months of last year, up from the third quarter’s 0.8 per cent.

The BCC said key manufacturing survey balances hit record highs in the three-month period. Export balances for the services sector also hit unprecedented peaks.

“It is a fantastic to start the new year” said John Longworth, the director-general of the BCC. “Confidence is high and our members are resolute in their determination to take the recovery from being good to being truly great.”

The BCC said the positive balance for domestic manufacturing orders in the three months rose to plus 35 per cent, employment to plus 33 per cent and employment expectations to plus 31 per cent. Profitability confidence among manufacturers rose to plus 51 per cent and turnover confidence was plus 67 per cent. On the services side, the export sales balance rose to plus 36 per cent and export orders to plus 33 per cent.

However the balances for domestic sales and export orders fell slightly in the fourth quarter, as did reported cash flow.

“We must give companies the opportunity to get the finance they need to go out and trade the world if we are to succeed in rebalancing the economy” Mr Longworth said.

David Kern, the BCC’s chief economist, also cautioned against complacency. “The eurozone’s basic problems have not yet been resolved, which could adversely impact our exporters, and inflation remains a major concern” he said.

The BCC survey, the largest and most representative of its kind, is compiled from the responses of some 8,000 businesses and is closely watched by the Bank of England and other economic policymakers.

The upbeat message is reinforced by another survey, from Grant Thornton, which shows that business optimism in the UK has increased by 74 per cent over the past 12 months. The accountancy firm’s international business report shows that optimism hit 71 per cent in the final quarter of 2013, up from a dismal minus 3 per cent at the end of 2012. It says Britain was the seventh most optimistic country in the world in the quarter, ahead of both the US and China. Scott Barnes, Grant Thornton’s UK chief executive, said: “The broad base of the recovery, largely driven by mid-market businesses, sets a solid foundation for growth to continue in 2014.”

However, the latest Markit/Cips snapshot of the services sector yesterday pointed to a slight slowdown in growth in the final quarter of 2013 in the largest sector of the economy. The purchasing managers’ index slipped to a six-month low of 58.8 in December. Nevertheless, the reading remains above the 50 level that separates growth from contraction. Markit’s chief economist, Chris Williamson, said: “It is perhaps inevitable that we may see the rate of growth slow compared with the unusually strong pace seen in recent months.”