The UK series: Growth areas 3/6

23 September, 2013

Following the impressive 0.7% second quarter economy expansion, the UK has continued their momentum throughout the summer period. According to the Organisation for Economic Co-operation and Development (OECD), the 2013 UK economy is going to grow twice as fast as previously anticipated.

It was previously estimated that the UK’s economy would grow by 0.8% this year. However, the latest prediction is that the UK economy is going to grow by at least 1.5%. Projections for growth are now greater that the rates expected in the US, Canada, Japan, Germany and France. This makes it important to analyse the sectors where this growth is emerging and contributing towards the UK’s recent momentum.

The Housing Market:

House prices accelerated in August to exemplify the strongest housing market for six years. There are also strong indications that the UK house prices are set to increase by 4% this year, and a further 5.5% in 2014. Demand for housing continues to outpace the number of homes for sale. 

One reason why the recent housing market momentum has been so strong is caused by a government initiative known as ‘help to buy’. This scheme allows first time buyers, or people moving into newly built homes to purchase a property, with a deposit of just 5%. It has attracted 10,000 successful applications in the 4 months since it was launched.    

The popular scheme will be extended to all homes costing less than £600,000 from next year onwards, with hope that it will further invigorate the housing economy. The positive indications that the housing market will continue to carry its momentum in the future, could well contribute towards a potential gain for the sterling currency. Equally, an increased demand for houses could seriously prompt local councils to be proactive and build more properties, which would then add employment opportunities for construction workers.

Right now, it is only the high unemployment rates that are withholding the BoE from considering an increase in interest rates. The sooner unemployment decreases, the faster the BoE may change their monetary policy. Any enthusiasm or future indications towards a possible change in interest rates will really boost confidence in the sterling.

Retail:

Figures from the British Retail Consortium showed that retailers witnessed their best sales figures for the past six months from February to August. Retail sales have grown 3.6% in the previous year, resulting in optimism amongst retailers reaching a three-year high. Furthermore, it is being suggested that retail sales will continue to rise in the run up to Christmas.

Retail job opportunities are now at an 11-year high. This is extremely encouraging news for the UK unemployment statistics as lower unemployment rates is a key indicator for the BoE’s policy towards raising their interest rates.

Retailers are already sourcing staff to help in the run up to the Christmas rush, which will lead to a future drop in the UK unemployment rates. The unemployment rates have already dropped for a consecutive nine months, and further drops will upgrade the sterling.

Expectations for the future:

Overall, if the UK continues to release such encouraging results, as it has done through the summer, this could lead to a variety of positive knock on effects throughout the UK. Business confidence and consumer confidence levels should potentially increase throughout the next quarter. This would equate to an increase in consumer spending, alongside additional employee hiring, as organisations begin to gain more confidence in the UK economy recovery.

At this present time, the current indications suggest that the UK economy is going to consolidate the momentum it has picked up this summer, and carry it through the autumn months.

By Jameel Ahmad, Research Analyst at Blackwell Global.

Follow Jameel on twitter @JameelAhmadFX


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