Slowing UK growth is worrying for two reasons. First is the source of the slowdown: the latest ONS figures show business investment slumping in the second half of 2014, and falling business confidence levels suggest that this could continue in 2015. Likewise, net trade is unlikely to provide a significant contribution to growth. Instead, expansion is coming largely from household spending, alongside an uptick in new consumer credit. This means that 2015 is likely to see the UK return to consumer-led growth, rather than being driven more sustainably by export and investment growth. The second concern is the public finances. The OBR projects that the government will be generating a surplus by 2018-19. But this is on growth forecasts that we believe the UK will undershoot over the medium term. Tax receipts are likely to be lower than the chancellor expects, and the deficit could remain into the next decade.
Samuel Tombs is UK economist at Capital Economics, says No
While it is becoming increasingly clear that the recovery lost its zing towards the end of 2014, the recent collapse in oil prices to just half the level last summer should reinvigorate it soon. The fall in petrol prices alone should boost the amount of money that households have left to spend on other items by nearly 1 per cent. And while the lower oil price may stymie the North Sea sector, it should provide impetus to the larger manufacturing sector by cutting costs and raising profitability. Meanwhile, output remains well short of its potential. Although much reduced, there is still significant slack in the labour market and there is scope for UK productivity to converge with the much higher levels in the US. And with little pressure on the Monetary Policy Committee to raise interest rates imminently, and the banking sector in better health, credit should flow more freely this year. As such, reports of the recovery’s death are greatly exaggerated.