May UK economic growth came in at a record high, according to data released by the the Confederation of British Industry (CBI). May’s figure was the highest since the CBI Growth Indicator began in 2003. In another study, the British Chambers of Commerce predicts growth will reach a seven-year high in 2014.
According to a CBI survey involving 726 respondents across the service, retail and manufacturing sectors, there was a +35% balance in May compared to +25% in April.
The CBI says data suggest that UK GDP (gross domestic product) continues to grow strongly in the second quarter of 2014. It forecasts a balance of +30% for output growth during the next three months.
During the three-month period to May, growth strengthened in business volumes for consumer, business & professional services, as well as in retail sales. Manufacturing saw similar levels of growth as those registered during the previous two months.
Several factors driving UK growth
Deputy Director-General of the CBI, Katja Hall, said:
“The UK economy is performing strongly and this is thanks to rising business and consumer confidence, better credit conditions at home and improving global economic conditions. What’s encouraging is that growth is becoming more broad-based, with solid increases in business investment over the past year. This bodes well for the year ahead.”
“But there are risks to the UK’s outlook from global developments, including the possibility that the situation in Ukraine and Russia could impact on global commodity prices. And with the Eurozone crisis still far from being fully resolved, the UK continues to be exposed to a prolonged period of subdued activity in the region.”
UK May manufacturing outlook looking good
A CBI Industrial Trends Survey involving 437 manufacturers reported a solid outlook in manufacturing for May. The CBI expects manufacturing to grow strongly during the coming months.
May output volumes continued increasing at the same rate in May as they did in April and March. During the coming quarter, growth is expected to pick up.
Regarding May’s manufacturing figures, Ms. Hall said:
“Overall, the manufacturing sector continues to perform well. Output growth is on an upward trend, with firms expecting an even stronger rise in the next three months. The recent rise in Sterling, coupled with a tepid recovery in the Eurozone could weigh on export demand.”
Housing market a potential risk
There is concern, however, that the UK housing bubble may suddenly burst. Mark Carney, Governor of the Bank of England (BoE), says the greatest risk to the UK’s long-term recovery and financial stability is its housing market. He said the BoE is watching accelerating property prices closely, as well as the increase in large-value mortgages.
The United Kingdom is not building enough houses, Carney added. In his home country Canada, which has half the UK’s population, twice as many houses are built each year.
(Katja Hall says the main risks the UK economy faces are the Ukraine-Russia situation and the Eurozone’s fragile recovery, while Mark Carney is concerned about the housing market.)