On Thursday, the official figures for UK growth are to be released with many hoping that this will shed some light on the strength of Britain ‘s economy.
Many market analysts are optimistic that the figures will reveal the fact that the UK has actually managed to outperform various other economies around the world.
The majority of global economists believe that the growth in the final quarter of 2015 will sit at a rate of 0.5%. This would mark a modest increase on the previous three month period; UK growth sat at 0.4% in the third quarter of 2015.
However, there have been many who have voiced their concerns about the current downturn that is gripping China ‘s economy. This, coupled with the global economic climate as a whole, has lead many people to wonder how long Britain can continue to perform. The majority of predictions are somewhere between 0.3% and 0.6%. The lower-than-normal Christmas sales have also made many people wonder if the figures for growth may be lower than initially thought.
Many businesses have also said that the uncertainty over Britain ‘s future in the EU is having an impact of the amount of confidence that some companies have in making investments at this moment in time. The pound has fallen a lot in recent weeks, which is partly because of the tight nature of the opinion polls regarding EU membership.
An economist at IHS Global Insight, Howard Archer, said that an increase in employment rates and the falling price of oil have both been contributing factors in the rate of UK growth. However, he went on to say that Britain as a whole is “clearly finding growth hard to come by at the moment and facing significant domestic and global uncertainties”.
He went on to say:
“We expect GDP growth in the fourth quarter to have been disappointingly limited again to 0.4% quarter-quarter. This would see year-year growth slow to 1.8%, the weakest since the first quarter of 2013.”
George Osborne attended the World Economic Forum, held in Davos, earlier this week. The chancellor claimed that the United Kingdom currently represented a “bright spot” in the world economy. He then went on to highlight external factors that could potentially lead to the slowdown of the British economy. He repeatedly stated that the UK was currently facing a “dangerous cocktail of risks from the global economy”.
Many experts point to the aims that George Osborne set out in the last parliament, which were to shift the UK economy back towards exports and manufacturing. However, in reality, the service sector has once again been at the heart of British growth- leading many to wonder if we have indeed seen any real change in the country ‘s economic architecture.
The year 2015 saw a stronger pound, which meant that many manufacturers lost out on business from exports. The crash in oil prices also damaged manufacturing because of a decline in orders for machinery to be used in the gas industry and also in the hunt for North Sea oil.
There has also been a relatively weak performance in the construction industry. Figures were recently released for the month of November, which displayed a real drop in output. Many construction firms have said that there is a real lack of skilled workers that is contributing highly to these numbers due to the delaying of projects.
The fourth quarter, according to recent figures, has not shown many signs of recovery. An economist at Investec, Philip Shaw, has predicted that this period will only see growth rates of 0.5%.
The company, Investec, has forecast a total level of growth of 2.2% for the entirety of 2015, which they say will only reach the heights of 2.4% in this coming year. Shaw went on to say that there is a real possibility of growth not even getting that high.
“The degree of financial market volatility at the start of this year highlights a more intense set of downside risks facing the economy,”
The worrying appearance of the global economy, coupled with a slower than expected growth rate in Britain, also had an effect on the Bank of England. The governor of the Bank of England, Mark Carney, gave out some very unsubtle hints to financial sector that the base interest rates would most likely remain at the record low of 0.5% for a long time yet.
Instead, this week will see most attention focused on the people over at the US Federal Reserve. The stocks and commodities markets had very turbulent starts to the year, which has led many people to look to the Reserve ‘s decision on interest rates on Wednesday. After almost ten years without change, the Reserve voted to increase borrowing costs back in the month of December. Many experts are now expecting them to keep them at the new level for the foreseeable future.
There is no doubt that investors all over the world will be scrutinising every word coming out of the US Federal Reserve, in order to attempt to ascertain what their future policies on interest rates will be. The increasingly unpredictable nature of the stock markets and also of oil prices have led many to reign in their expectations of a rates increase as early as March.
A senior economist at ING Financial Markets, James Knightley, commented saying:
“Given the turbulence in financial markets, we will be looking to see if the Federal Reserve offers any calming words in the press release accompanying the FOMC policy decision.”
“Given the inflation outlook is increasingly benign and the concerns that market volatility will have a negative influence on sentiment and economic activity, we suspect the general tone will be to emphasise that policy tightening is not on a pre-determined path and that the Fed will be closely watching events.”