Positive Signs For UK Economy


Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Growth in the UK economy hit a nine year high in the second quarter of 2010 having expanded at an even faster pace than economists had previously predicted. Gross domestic product (GDP) grew at 1

Growth in the UK economy hit a nine year high in the second quarter of 2010 having expanded at an even faster pace than economists had previously predicted. Gross domestic product (GDP) grew at 1.2% between April and June, according to the Office for National Statistics? (ONS) revised report on the quarter. This was well up on the 0.3% growth seen in the first quarter. A month earlier the ONS had predicted that GDP would grow by 1.1%.

Record breaking gains in the construction sector were credited with boosting industrial production as the ONS revealed that construction output soared 8.5% in the second quarter. It had predicted that construction growth would be 6.6%.

Growth figures were also lifted by companies building up their inventories, which were up ?1 billion ? the best since the autumn of 2008. Also contributing was stronger household spending. Consumer spending rose by 0.7% compared with a 0.1% drop in the first quarter. It was the strongest quarterly rise in two years.

Output in the service industries grew by 0.7%, which was up from 0.3% growth in the first quarter; business services and finance expanded by 1.5% and manufacturing grew 1.6%. Since the second quarter of 2009 the economy has expanded by 1.7%.

The second quarter of 2010 saw the trade deficit in real terms improve to ?10.3 billion from ?10.4 billion. Exports of goods and services rose 1.1% while imports increased by just 0.9%.

The British Chamber of Commerce (BCC) also issued a report in which it increased its prediction of 1.3% economic growth for the UK to 1.7%. The forecast for 2011 was also increased from 2% to 2.2%.

BCC Chief Economist, David Kern, said: ?UK GDP was very strong in the second quarter of 2010 and the pace of growth will remain satisfactory in the second half of this year. Activity will be supported in the short-term by the cumulative impact of the huge injections of stimulus during the recession, the earlier sharp falls in sterling, and the rebuilding of stocks.?

Encouraging results from the UK?s larger companies added to optimism when more than 70 companies released interim or full-year results at the end of August, with many posting improved profits.

High street sales up for second consecutive month

August?s retail sales experienced the highest volume since April 2007 according to the Confederation of British Industry (CBI). High street sales were higher than a year previously and showed the second consecutive year-on-year increase.

The CBI's monthly Distributive Trades Survey exceeded economists' forecasts of +20 and rose to +35 from +33 in July. The August orders volume balance rose to +37, up from +24 in July, and expected sales for September is +39 against +45 in August.

There was record growth in clothing sales at +96, which was the highest since the survey began in 1988. There was a marked improvement in employment in the retail sector, with the balance coming in at -1, up from -20 in May and its highest level since February 2004 when it had stood at +22.

Other sub-sectors seeing the strongest growth were grocers, durable household goods, footwear and leather, and hardware and DIY.

The CBI said that retailers expect sales to continue growing in September and they are more optimistic about the general business situation in the coming three months, expecting volumes to be higher than a year ago.

For the first time in six years, retailers expect to invest more in the coming year than in the last one. With a balance of +32%, firms? investment intentions are the most positive since February 1994 (+40%).

The August Distributive Trades Survey was conducted between 27th July and 11th August, and covered 133 companies.

Consumer confidence rises

UK consumer confidence rose in August for the first time in six months as reflected in the GfK/NOP consumer confidence index which notched up four points after falling steadily since February. The index revealed that Britons feel more positive in their personal financial situations and about the general economy over the last 12 months and are also confident in the general economy over the next 12 months.

Consumer confidence also rose in Europe to the highest level in more than two years, according to the European Commission.

In the US, the economy grew at a slower annual rate than previously estimated, with GDP being revised downwards from 2.4% to 1.6%. This was however better than most analysts had expected and Federal Reserve chairman, Ben Bernanke, said that pre-conditions are in place for growth in 2011. He also said that the Bank was ready to take further action if necessary to stimulate the economy should it deteriorate significantly. US and European markets were lifted by Bernanke?s comments.

While recovery remains tentative and there is still a long way to go, these positive signs for economic growth are encouraging. It could be an opportune time for investors to invest new capital or review their current portfolio. We will probably continue to see some stockmarket volatility over the rest of the year, but if you are invested for the longer term your share portfolio can be expected to benefit from the economic recovery. Asset allocation and diversification across countries and sectors will be important though to lower risk. An experienced wealth manager like Blevins Franks will advise you on the most appropriate portfolio strategy to meet your specific needs.

By Bill Blevins, Managing Director, Blevins Franks

1st September 2010

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.