The export levels achieved by Britainís service sector in the first quarter of this year have reached a record high, according to the British Chambers of Commerce (BCC).
There was also positive news on the condition of Britainís manufacturing, with the BCCís latest survey revealing that growth has remained steady in the first three months of 2014.
However, the BCCís head economist, David Kern, has warned that despite the overwhelmingly positive nature of the recent surveyís findings, that nevertheless Britainís current economic recovery is in danger of being a short term occurrence due to the fact that it is far too based on consumer spending that has been artificially bolstered by low interest rates.
Mr Kern argued that this has led to personal debt levels getting ëtoo highí and identified that the country faces a number of challenges in the future in order to ensure that its economic recovery is sustainable and secure.
Imbalanced economic recovery
Mr Kernís remarks on the current condition of Britainís economy echoes sentiments made by the Bank of England, who ruled out raising their base rate from 0.5% earlier this year on the grounds that the countryís economic recovery had been too far based on the resurgent property market and high levels of consumer spending, rather than on more meaningful parameters such as labour productivity and export levels.
Fears have arisen of a potential ëhousing bubbleí occurring when interest rates finally do rise, with households that are marginally paying their monthly mortgage repayments at present standing to be the worst affected as they will be unable to afford higher and more taxing payments in the future.
It is also feared that a personal debt crisis could occur in the future, as the knock on effects of long term cheap credit access begin to sink in.
Last week, the Office of Budget Responsibility (OBR) alarmingly forecasted that total household debt in the UK will rise by a staggering 43% in the next 5 years, soaring to £2.251 trillion in 2019 from its current value of 1.574 trillion.
This means that on current estimates, it is highly likely that a plethora of households could be faced with record high levels of unsecured and secured loan debt in the next 5 years, and this could lead to soaring levels of house repossession, loan defaults and debt related issues.
And calls for interest rates to rise prematurely have begun to grow, as policymakers become increasingly apprehensive about the long term impact that offering borrowers cheap finance since 2009 will have moving forward to the future.
Mr Kern argued that exceedingly high personal debt levels need to be urgently addressed and warned that unless ësignificant structural changesí are made to the way our economy functions, that it will become impossible to achieve medium to high levels of growth in the future.
He also highlighted that the BCCís latest data had revealed that the UKís current account deficit is currently higher than all of its G7 counterparts, with this actuality meaning that the country is currently subjecting itself to ëlong term risksí if the problem is left unresolved.
“Investment and exports must play a larger contribution to our economic future, or else there is a risk that our recovery could stall,” he said.
John Longworth, director general at the BCC, said that business lending levels need to pick up in order to improve the financial condition of UK workers, and called for lenders in the country to loosen their pursue strings so that businesses are given a chance to expand, invest and become more labour productive.
He said: “Only by repairing our broken business finance system will viable, growing firms gain access to the capital that will allow them to invest in their staff and machinery, and enter new markets.”
Mr Longworth did identify that there have been positive steps taken in recent times to address the imbalance nature of the recovery, and pointed to the data on the BCCís latest report which indicated that export sales and orders for services such as accountancy and computing had increased to an ëall time highí in the past two years.
“Certainly, all the indicators are stellar,” Mr Longworth told the BBC. “Things are really looking up on exports.”
However, Britain must “continue to increase the amount of export support we have”, he added.
Last week, Chancellor George Osborne revealed that he will be implementing a series of policies that are intended to bolster the countryís export levels on a long term basis.
Speaking in Rio de Janeiro, Mr Osborne identified that he will invest £6 million in the current year on increasing trade adviser provisions for medium sized businesses, so that optimal decision making is made by the countryís firms when making export arrangements with external parties.
He also revealed that all banks that are currently giving exporterís access to finance under the Export Finance scheme would be able to pass on details of these loans to the Bank of England, who will then subsequently give them access to further finance.
The Chancellor identified that he hopes the new policies will increase lending levels to businesses, by lowering the risk factor they face when giving small and medium sized businesses access to finance.
Cost of living remedy
As the growth in the economy continues to improve each month, British workers are increasing the pressure on business bosses to improve their wages, the BBC argued.
The BBC highlighted that workers in a broad range of service sector jobs, ranging from consumer and retail to professional services, are all currently asking their employers for higher salaries.
Mr Longworth argued that by improving business lending levels, the countryís firms could begin to expand and pick up their labour productivity levels, and this would be a natural way to pick up stagnant worker wages that have consistently had their value lowered due to the fact that their growth has been outstripped by inflation in recent times.
“There is a certain amount of pressure in the service sector, our biggest sector, on wages,” Mr Longworth said.
“This could be the fix for the cost-living crisis. If wages start to increase this year, people will feel better off.”
A study instigated by the Recruitment and Employment Confederation (REC) displayed that starting wages had risen in March this year, as employers clamour to acquire skilled workers for their business.
“Starting salaries and hourly pay rates are up as employers battle to entice the talent they need,” REC policy director Tom Hadley said.
“Worsening candidate shortages mean that the number of people available to fill both temporary and permanent jobs is falling at the sharpest rate in nearly a decade,” he added.
Strong business performance levels in the next few years are clearly a vital area to ensure that the countryís economic recovery begins to become sustainable and long term, rather than being propped up by artificial and hollow factors displayed thus far such as a booming property market incurred through cheap access to finance.
Business expansion is perhaps the best remedy to the ongoing ëcost of livingí crisis in the country, as worker wages will begin to rise in real terms as employer spending power increases from improved levels of revenue. Achieving this will be dependent on the conduct of lenders in the UK though, as business lending levels are simply not high enough at present for the countryís SMEís to collectively expand sufficiently enough to improve the condition of worker wages.