Expert opinion on current trends or market issues

Will recovery be sustained into 2014?

Over five years ago the UK announced it was the worst economic crisis of our time and officials confirmed we were in a recession. Over the past year we have seen a rapid improvement in the economy - looking further ahead prospects remain bright, but risks persist.

The Chancellor’s statement

On December 5th 2013, the Chancellor [George Osbourne] presented his Autumn Statement. The statement detailed how the UK is growing faster than any other major economy and Britain was set to be back to full health by 2018/19.

The boost in Britain’s return to growth has enabled the Chancellor to present an Autumn Statement against a backdrop of an improvement in government finances for the first time. This was the  result of stronger activity and easing pressure on welfare payments. The latter was driven by falling unemployment – a reduction of some 200,000 in the number claiming unemployment benefit in the last six months alone.

A careful balancing act

Despite this improved outcome - public finances remain fragile. The borrowing requirement for 2013/14 is still likely to represent some 7% of Gross Domestic Price (GDP) after four years of restraint, and the proportion of public sector net debt to GDP is still rising.

Since March 2012, the figure has risen to 75.4% in October 2013 (a 4.4% increase) and is likely to rise to over 80% by 2015 as budget shortfall continues. Likewise, much of the increase so far has been a catch-up in growth and the underlying measure of public finances is only slightly improved. The recovery, although surprisingly strong, could lose momentum if risks such as a deterioration in  global conditions were to play out.

The 11 key measures for 2014:

  1. Green taxes: household bills to benefit from a reduction in some of the green levies that have helped push bills up -funded by extra tax revenue after a crackdown on tax avoidance
  2. Petrol taxes to be frozen instead of rising by 2p a litre; this follows similar measures in the Chancellor’s earlier Autumn Statements and means petrol will be 20p a litre less than in the previous government’s plans
  3. Train fares to remain flat in real terms instead of rising next January by 1% above inflation.
  4. Business rate rises will be limited to 2% in England and Wales next year instead of being linked to inflation (they were set to rise by 3.2% based on the September retail prices index) and there will be major business rate concessions to small retailers in the next two years
  5. New cap on total welfare spending from 2014, but pensions and job-seeker benefits excluded from the cap
  6. Employer national insurance contributions will be removed altogether on a million and a half jobs for those under 21 in 2015
  7. Export finance available to support British businesses doubled to £50bn
  8. Selling off the government's 40% stake in the Eurostar rail service
  9. Transferable income tax allowance for some married couples
  10. Acceleration of plans to raise the state pension age-date when the state pension age rises to 68 will be brought forward to the mid-2030s and the age could rise again to 69 by the late 2040s
  11. Tax disc to show motorists have paid vehicle excise duty to be replaced by an electronic system

Looking ahead - some risks remain probable

The nature of the Autumn Statement package means that there is little impact on our own growth forecast for 2014 and 2015. Household finances will receive a small boost from the fuel and transport measures, but not enough to materially change our forecast. Further ahead prospects may be a little brighter than the current forecasts however due to the timeframe of this proposed change, for the time being our forecasts are unchanged.

Prepare for growth

Gaining an economic advantage is imperative to the success of the country. Gaining a competitive advantage is something many UK, and worldwide, businesses are focussing on as a priority. With increased personal debt levels, teamed with a strengthening economy, the landscape of customer behaviours will undoubtedly change. The overall measure of consumer price inflation may have eased  but energy costs continue to build. Indeed many households continue to feel the pressure of the rising cost of living and squeezed disposable incomes. Current market insight shows more young people stay at home longer than previous (some 20% more), 15% of all houses are now rented, with a 13% increase in properties listed for rental across the UK. Houses prices have risen positively and latest statistics shows a steady 1.7% increase – in reality this makes house prices the same as 2007.

There are many opportunities which surround us. Understanding what they are, and how we will capitalise on them is possibly the most common challenge faced for businesses and their growth strategies. Are you ready?


About the author

William Thomson

Director of International Economics, Experian

William has worked for many years to help some of the world’s leading private sector organisations understand how economic change will impact their business portfolios.
During his career at Experian he has been helping customers apply economic forecasts and analysis to portfolio loss forecasting and stress testing.


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