There’s been a large change of optimism in the economy during the past year with global growth set to improve through 2013 and beyond, according to Stephen Gifford, director of economics at the Confederation of British Industry (CBI).
Speaking at the BMFs Members’ Day held at the Whittlebury Hall in Towcester, Gifford said that consumer confidence about the economy in general has rocketed over the past quarter, with surveys conducted by the CBI showing record highs in optimism since the recession started.
He said that the GDP growth increased by 0.7% q/q in 2013 Q2 with the major components of output including industrial production and construction.
Gifford said: “Although the growth is broad-based, it’s being driven by construction, household consumers and also by the service sector as well. I think there’s a bit of unease, particularly among commentators, about how sustainable that will be and I think it we can only call it a sustainable recovery if we start to see business investment returning.
“What has been lacking in the past few years has been confidence. A lot of companies have been sitting on cash piles but they haven’t been investing.”
The revelation that the cost of living is increasing has fuelled the debate as to whether the current recovery is sustainable or not, but Gifford has urged consumers to invest and build upon the current state of optimism.
It was also revealed that demand in the housing sector has increased, with London experiencing a mini boom with a strong increase in prices. The house price index has risen by 6.9% in the capital, with a 2.2 per cent rise in the South East and a 1.4% rise for the rest of the UK.
However, the sustainability of this increase remains unpredictable: “Every recovery we have had in the past few decades has always started with a house price increase and it’s because we have a long-term lack of supply in the market,” said Gifford.
The director of economics also dismissed the suggestion that the UK is currently in a bubble. He said: “I think a bubble is one that pops and I don’t think we’re in a situation where that happens, we’re in a situation where there are constraints on affordability of housing. Affordability is already stretched; we already have quite a lot of demand and don’t have too much supply, so in those circumstances it’s very hard to see a collapse in prices.”
Overall, improvements in the PMI (Purchasing Managers Index) figures suggest the Eurozone will start to grow again and emerge from the recession, but with countries such as Spain, Italy and Greece all continuing to struggle, Gifford believes Europe is the main risk to the UK economy.