Are there reasons to be optimistic about the British economy over the year ahead?

Anna Leach

Last year was a difficult one, but the labour market proved remarkably resilient. Employment levels are back above pre-crisis levels and unemployment has fallen – although considerable slack remains, with wage growth remaining weak. Nonetheless, combined with a relatively stable outlook for inflation and the supportive stance of monetary policy, this should provide some uplift to consumer confidence and incomes. The UK recovery should gradually strengthen during 2013, as the global economy continues to stabilise and domestic demand improves. We expect growth of around 1.4 per cent in 2013 and 2 per cent in 2014 – although the UK remains dependent on developments in the Eurozone and long-term growth is unlikely to accelerate markedly, as the effects of the financial crisis will take many years to unwind.

Anna Leach is head of economic analysis at the Confederation of British Industry.

Iain Stealey

Stop and think – have you had a pay rise recently? This is the major problem that the UK is facing. The largest component of the UK economy, the consumer, has had its hands tied. Average weekly earnings over the past three months have been 1.8 per cent, while consumer price inflation is 2.7 per cent. Until this changes and we see earnings growth greater than inflation, giving the consumer the confidence to spend, the UK economy will continue to struggle. Add onto this a government that is cutting costs, and it becomes hard to see where the growth will come from. With lower projected growth and debt levels that will not fall until later than was hoped, 2013 will be the year that the rating agencies take a long hard look at whether the UK continues to warrant a AAA rating. Our sense is their conclusion will be no.

Iain Stealey is a fund manager at the JP Morgan Strategic Bond Fund.