2007 signaled the housing crash in the U.S. which arguably plunged the world into recession, but now the Office for National Statistics (ONS) is suggesting that the UK economy is growing. Q4 of 2013, for example, saw growth of 0.7 percent, and gross domestic GDP growth of 1.9 percent – the highest it has been since 2007.
Services Up, Production Down
As has been the trend in recent months, Q4 saw a rise in the services sector – a sector which accounts for more than 3 quarters of the UK’s economic output – of around 0.8 percent.
Unfortunately, however, the less impressive industrial sector fell from 0.8 percent growth quarter on quarter to 0.7 percent as a result of North Sea oil and gas failures. In construction, an industry that suffered massively from the economic downturn and currently only accounts for 8 percent of UK GDP, there was a fall of 0.3 percent.
Thankfully, however, these industries are only a small part of what kept the UK economy ticking over, so with the services industry up, the entire UK economy is seeing growth.
Growth and Decline Explained
Although the Government recently launched its “Help to Buy” scheme to facilitate younger couples purchasing their own homes, the general trend in the construction industry has been negative. In essence, this is likely because many people do not yet have the disposable income to be able to afford a mortgage deposit – regardless of the help, they’re afforded from the government.
On the other hand, the services industry is improving and growing on what appears to be a monthly basis. One of the most significant side effects of this is there has been a recorded mass migration of young people to England’s capital, with London now home to around over 1 in 3 young people who chose to relocate from their home towns.
The implication of this is significant – that the capital is draining the rest of the UK of its talent, and this means that in the long run, the UK may suffer. Despite these implications, many people in Government – particularly the Tory front benches – agree that for the foreseeable future, the UK’s economy will grow.
Investors Positive
With the increasingly positive view regarding the state of the UK economy, many have turned their heads and altered their financial productions for the coming 2 years. For example, the International Monetary Fund’s (IMF) predictions for 2014 have changed from a 1.9 percent growth forecast to 2.4 percent – a vast improvement, and one which relies, essentially, on the continued and successful growth of the services industry.
The IMF’s new higher predictions have sparked the interest of investors, although it is important to remember that the output level is currently still 1.3 percent below the 2008 first-quarter level, so there is still almost certainly room for caution. Therefore, any potential investors might better their investment chances by reinforcing their bullish optimism with up-to-the-minute news.
Ultimately, the optimism of traders is not misplaced, with the UK’s economy better than it has been for over half a decade. However, some caution should be used. Perhaps the words of Vince Cable should be heeded.
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