Are we stuck with the “wrong sort of growth”? Maybe not
Our economy has bounced back over the last 12 months – no doubt about it. But is this welcome resurgence built on shaky ground?
Critics have pointed out that the growth often appears to be fuelled by consumer spending and a somewhat warped housing market. Hardly reassuring.
Such fears were brushed off last month by Bank of England economist Ian McCafferty, who said that it's perfectly normal for household spending to rise before other forms of growth – such as business investment – take hold.
Joe Public loosening his purse strings is in fact a “prerequisite for a recovery in business investment”, said McCafferty – who, as a former chief economist at the CBI, should know a thing or two about how businesses work.
Figures published this morning seem to prove him right, revealing that business investment is now following the rise in consumer spending and starting to pick up.
Business investment grew in every quarter in 2013, the Office for National Statistics (ONS) has estimated – culminating in a 2.4 per cent jump in the final three months of the year.
Indeed in the final six months of the year, it grew by over four per cent.
Compared to a year earlier, business investment – at nearly £32bn – in the fourth quarter was 8.5 per cent higher than at the end of 2012.
While warning that the ONS estimates should, as always, be taken “with a pinch of salt”, Berenberg’s Robert Wood paints a bullish outlook: “The recovery is broadening out and with firms’ optimism in the recovery rising rapidly, 2014 is likely to see growth gradually gaining momentum.”
In McCafferty’s January speech he warned that, despite his optimistic theory, business investment may not pick up meaningfully until later this year. Today’s figures suggest he may not have been optimistic enough.
Either way, the initial signs from the fourth quarter give hope that we might finally be experiencing a broadly-based recovery.
Key:
Gross domestic product (GDP)
Household final consumption expenditure (HHFCE)
Non-profit institutions serving households (NPISH)
General government final consumption expenditure (GGFCE)
Gross fixed capital formation (GFCF)