Solid quarter of growth weakened by investment

TWO PROFESSIONAL bodies of chartered accountants now expect the UK’s growth to rise to one per cent in the third quarter, which would be the joint highest since 2007.

According to the Office for National Statistics, the economy expanded by 0.6 per cent in the second quarter, but the Institute of Chartered Accountants in England and Wales (ICAEW) and Grant Thornton now expect a full one per cent’s GDP growth between July and September this year.

The last time the economy saw more than one per cent growth in a single quarter was in late 2007, before the onset of the financial crisis.

The chartered accountants also recorded the strongest business confidence since the middle of 2010, with companies expecting to increase their staff numbers by 1.6 per cent in the next 12 months, and wages by 1.8 per cent in the same period.

Both the ICAEW and manufacturing organisation EEF raised their expectations for UK economic growth, but echoed ongoing concerns about the lack of business investment.

Grant Thornton’s UK chief executive Scott Barnes commented on the weak environment for capital spending: “Investment growth has fallen this quarter and the hopes of an investment-led recovery do not look to be materialising”. He added: “Couple this with modest export figures and it becomes clear that the economic recovery is balanced on knife-edge”.

Contributions to current British growth are referred to as unbalanced by EEF, dominated by growth in government and household spending last year, and spurred on again by consumers in recent months.

Forecasters IHS Global Insight also hiked their prediction for growth, and now expect a 1.9 per cent expansion next year.

Howard Archer, the group’s chief economist, gave a slightly more optimistic view of the situation for capital investment: “The hope is that this recent firming economic activity underpins further, sustained improvement in business and consumer confidence, which in turn encourages businesses to invest”.