Recently, positive news regarding the UK's economic recovery has been emerging, significantly boosting confidence in both the UK—which has been hovering on the brink of recession—and among investors. The gloom that has long clouded people's minds is gradually dissipating. However, experts point out that the UK economy remains fragile, and the road to recovery will not be smooth in the foreseeable future.
On June 12, data released by the UK Office for National Statistics (ONS) showed that the number of people claiming unemployment benefits in the UK fell more than expected in May, reaching its lowest level in two years. The number of unemployment benefit claimants in May decreased by 8,600, compared to an expected decrease of 5,000; the previous figure was revised to a decrease of 11,800 from an initial estimate of 7,300. The total number of unemployed people for the month fell to 1.5077 million, with the previous figure revised to 1.5163 million from an initial 1.521 million. Meanwhile, the UK unemployment rate in May was 4.5%, unchanged from April. Some believe this is the latest sign that the pace of the UK's economic recovery is becoming more solid.
Recently disclosed economic data is equally encouraging. On June 5, data released by Markit and the Chartered Institute of Procurement and Supply (CIPS) showed that the UK Services PMI rose from 52.9 in April to 54.9 in May. On June 4, the UK Construction PMI also rose from 49.4 in April to 50.8 in May, the first time the index has broken above 50 since October of last year. On the same day, a report released by the British Retail Consortium stated that UK retail sales grew by 1.8% year-on-year in May, exceeding market expectations. Data released on June 3 showed that the UK Manufacturing PMI rose to 51.3 in May, hitting a 14-month high, with the April PMI revised upward to 50.2.
Experts have spoken highly of the aforementioned data. RBC Capital Markets economist and former Bank of England official, Lars, stated, "The recent performance of the UK services sector is very encouraging, which is a rare phenomenon. Continued loose monetary policy, the easing of the Eurozone crisis, and falling inflation are the main reasons for the signs of recovery in the UK economy. Although the current economic situation in the UK is not perfect, it is more important that we have passed the most difficult period." Markit senior economist Williamson pointed out that the UK has seen a pleasing "all-around" performance in the services, construction, and retail sectors for the first time this year. According to Williamson's projections, the UK's second-quarter growth rate will reach 0.5%. Another Markit economist, Moore, stated that the latest data indicates that growth in manufacturing output will support overall economic growth in the UK in the second quarter. Another economic research institution, Capital Economics, stated that the government's housing support plan is proving effective and has successfully stimulated growth in the UK construction industry.
Given the relatively strong performance of the UK economy recently, relevant institutions have also made more optimistic judgments about its prospects. On June 4, the British Chambers of Commerce (BCC) released a report raising its economic growth forecast for the UK from 2013 to 2015. The chamber expects the UK economy to grow by 0.9%, 1.9%, and 2.4% respectively from 2013 to 2015, a slight upward revision from the previous forecasts of 0.6%, 1.7%, and 2.2%. The institution also expects that over the next three years, the services sector, which accounts for about 77% of the total economy, will continue to outpace other industries, with growth rates potentially reaching 1.8%, 2.3%, and 2.8% respectively. Data released on June 11 by the UK think tank, the National Institute of Economic and Social Research (NIESR), showed that the UK's Gross Domestic Product (GDP) grew by 0.6% year-on-year in the three months ending in May, the strongest performance since the boost from the Olympic Games ended last September. At the same time, the GDP growth for the three months ending in April was also revised upward to 1.0%. Consequently, NIESR expects that driven by a comprehensive recovery in the services sector, the UK's annual GDP growth for this year is expected to reach 0.9%, and economic growth will reach 1.5% next year. After a careful analysis of second-quarter economic data, the Royal Bank of Scotland concluded that the UK's second-quarter GDP might grow by 0.5% compared to the previous quarter, higher than the 0.3% in the first quarter.
However, in contrast to the optimism of most regarding the UK's economic prospects, some individuals and institutions have analyzed the complex factors behind the UK's economic recovery. On June 12, Bank of England Monetary Policy Committee member Fisher stated at a meeting in London that although the UK economy had a good start in the second quarter, the growth rate is not fast enough and may continue to grow slowly for some time. The UK's economic recovery may be slower than that of the United States. He pointed out, "The current macroeconomic outlook for the UK is not as bright as that of the United States, and it lags behind the US in terms of restoring growth. The US may be on the path to recovery, while the UK is still one to two years behind. Therefore, for us, the issue of exiting monetary stimulus policies will be encountered a bit later."
BCC Director General John Longworth stated that although the institution raised its growth forecast for the UK economy, it does not change the fact that the UK's economic growth remains very weak. The BCC called on the government to further support the real economy and employment. BCC Chief Economist David Kern believes that uncertainty in the Eurozone economic outlook and a rebound in UK inflation will be the two major risk factors for the UK economy in the future. In addition, public sector layoffs will lead to an increase in the unemployed population. The total number of unemployed in the UK will peak at 2.65 million in the third quarter of next year, pushing the unemployment rate to 8.1%.
The Wall Street Journal also recently pointed out that the road to the UK's economic recovery remains long: First, optimistic PMI data may not necessarily translate into actual economic growth. So far, there have been no signs that UK companies are accelerating investment to make up for the shortfall caused by cuts in consumer and government spending. Second, slow wage growth remains a difficult problem plaguing the UK economy. From February to April this year, wages excluding bonuses grew by only 0.9% compared to the same period last year, while the current inflation rate is 2.4%. Citigroup pointed out that real wages have fallen by 7% over the past five years, and at the same time, rising unit labor costs mean that the rate of decline in the unemployed population may still be relatively slow. Third, the UK's current GDP is still 2.6% lower than the peak reached before the recession, ranking second to last among the G7 nations, only ahead of Italy. NIESR expects that the UK's economic output will not exceed its early 2008 peak before 2015. All these indicate that the momentum of the UK's economic growth is very fragile.
However, judging from the analysis of all parties, although the UK economy faces many constraints, it is slowly moving toward the path of recovery.
