The UK economy will exceed its pre-recession peak this summer, according to the latest predictions from British businesses, despite warnings that the recovery is on shaky foundations as a booming housing market stokes consumer confidence .
The British Chambers of Commerce had forecast that GDP would overtake its performance in the first quarter of this year in the autumn, but has now brought that forward to the second quarter. Services and manufacturing have been the main drivers of growth according to official data, but the BCC warned that the buoyant outlook concealed long-term challenges.
"We urge the chancellor to use this month's budget wisely by incentivising businesses to hire young people so that the next generation of workers are not left behind," said John Longworth, the director general of the BCC, which represents more than 100,000 businesses. According to the BCC, UK GDP – excluding the impact of inflation – will reach £392.8bn in the three months to July, a level not attained since the economy generated £392.7bn at the beginning of 2008.
It now expects GDP to grow 2.8% this year, compared with its forecast of 2.7%. But that is still below the Bank of England's growth forecast of 3.4% this year. The business group predicted wage growth would overtake inflation in the middle of this year, meaning workers will finally see growth in their real earnings.
But the forecasts raised concerns that young people are missing out in the recovery, prompting Longworth's warning that school leavers and graduates could be missing out. The youth unemployment rate is predicted to remain almost three times the national average until 2016. Halifax, one of the UK's biggest mortgage lenders, also raised alarm among economic commentators last week when it reported that house prices rose an expectation-shattering 2.4% in February compared with the previous month.
Nonetheless, the BCC's cautious optimism was bolstered by a further report showing that businesses in the UK are at their most confident since before the global financial crisis and more upbeat than in any other developed economy, according to a report out on Monday.
Growing optimism and hopes of bumper profits this year are reflected in plans to hire new workers and invest more by UK businesses, says a survey of 11,000 companies around the world by data specialists Markit. The buoyant picture contrasts with warnings that Britain's economic recovery is largely built on the precarious benefits of a housing market recovery and risks running out of steam.
For the global economy, Markit's global business outlook survey also paints a bright picture, though the growing optimism in advanced economies is in marked contrast to pessimism across the emerging markets.
"Recoveries in the US, eurozone, UK and Japan are looking increasingly sustainable, with companies set to boost their capital spending and hiring at the fastest rates since the financial crisis alongside the brighter outlook," said Chris Williamson, chief economist at Markit.The survey puts global business optimism at a two-year high. The UK leads developed economies on the outlook for growth, hiring, investment and profit expectations. The only emerging economy forging ahead of the UK is Brazil, where the upcoming soccer World Cup and Olympics have buoyed the mood among businesses, Markit said.
George Osborne, who presents his budget on 19 March, the penultimate one before a May 2015 general election. The chancellor was dealt a blow last week by a report that claimed he faced a £20bn black hole in the public finances. An analysis of models by the Office for Budget Responsibility by the Financial Times suggested austerity may have to last a year longer than expected because the government will not be able to rely on economic recovery to eliminate part of the deficit.
The claims intensified concerns about Britain's low productivity, stemming partly from weak business investment. The BCC forecasts business investment will record "strong growth" of 6.6% in 2014, then 5.7% in 2015 and 2016. But by 2016 it will still be slightly lower than in 2008.
"Britain is simply not investing enough," said Longworth.
After concerns that the recovery has been largely focused on London and the south-east, there is some reassurance that the pick-up is becoming more widespread.
Business activity grew in every region of England and in Wales last month and hiring picked up, according to the latest Lloyds Bank commercial banking regional purchasing managers' index (PMI).
The West Midlands was the best-performing region, followed by the South East while growth was slower in the East Midlands and North East.
The latest survey from the Federation of Small Businesses (FSB) also points to more jobs being created in coming months. The survey of 2,814 businesses showed 15% wish to take on more people in the coming quarter and 11% had increased staff in the previous three months. Again, the West Midlands led the pick-up with an above average increase in hiring.
The FSB wants Osborne to use next week's Budget to pull off promised reforms in banking and energy and to make it easier for small businesses to invest.
FSB national chairman John Allan said: "That more than half of firms want to grow is a sign to the chancellor to keep the focus on business.
"I believe small firms can do more too – for instance helping long term unemployed youngsters back to work and as the economy continues to improve, boosting wages for the low-paid."
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