Growth forecasts raised as UK recovery steps up

AS THE economy shows signs of finally bouncing back from prolonged slump, some groups are now predicting a much more healthy recovery than was previously expected.

Capital Economics’ review for the third quarter, released today, forecasts that the economy will not only begin to expand, but that the UK may see annual growth of four per cent in the second half of the decade, above the pre-crisis trend.

“Of course, the long term-outlook is not without its risks. But there will always be clouds on the horizon. When a full-blown recovery finally comes, we believe that it will be worth the wait”, the bullish report suggests.

Tomorrow, the IMF’s world economic outlook is released. Despite recent disagreements with the government, strong prospects have led to speculation that the international financiers will have to improve their predictions for British growth. The fund’s growth estimate for the UK in 2013 is currently 0.7 per cent.

For this year, Capital Economics expects growth of 0.8 per cent, outstripping the prediction for a 0.6 per cent increase from the Office for Budget Responsibility. Higher growth would be a boost to the treasury, making deficit reduction easier.

The analysis also suggests that the UK could mirror the success that the US has seen with shale gas, where energy prices have been reduced

Other news also points towards a strengthening economy, as KMPG and the Recruitment and Employment Confederation (REC) announce the fastest rise in permanent staff appointments in over two years.

Businesses are responding to the more confident atmosphere, recording strong activity and a bright outlook for the future. The Lloyds TSB regional purchasing managers’ index (PMI) rose to 55.9 in June, an 18 month high. Any PMI over 50 indicates that firms think that the general environment for business has improved.