Shock Horror – UK Economy outperforms rest of Europe

It's an unusual feeling for most British people, and probably for our politicians as well, to be held up as one of the top performing economies in the "developed" world. But that's where we find ourselves. Much of that is driven by London, the powerhouse certainly behind growth based on business services, tourism and travel. But the effects have spread more widely - look at the Tour de France mania in Yorkshire. Indeed, across the nation, it feels like sales of fancy bicycles, lycra and Vaseline must account for a far proportion of the current economic growth. At a personal level, the bungalow next to my parents in rural Durham has finally sold after a year or more on the market, so perhaps the upturn really is widely based.

Expected UK economic growth is around 3% for this year, but some commentators have pointed out that GDP per head is not growing in the same way, as the UK continues to see immigration-driven population growth. And there have been some recent figures that might signal some sort of turning point – UK manufacturing showed a surprise fall of 1.3% in May, for instance.

But matters are generally more positive than they are in France. The French economy failed to grow in the first three months of the year, data from statistics bureau Insee confirmed. France only avoided an overall economic contraction in the first quarter due to government spending and companies rebuilding their stocks. The statistics bureau has forecast the French economy will grow only 0.7% in 2014, below the government's forecast of a 1% expansion. And even that looks a little optimistic.

Meanwhile, even Germany doesn't look so good, with German industrial output falling 1.8 percent on the month in May, its biggest drop in more than 2 years. And the US situation is somewhat uncertain. The first quarter economic figures were way below expectations, with a fall of 2.9% in GDP, but that has been put down to the terrible weather conditions across much of the country. So we’re waiting to see whether that is so or whether there might be more underlying problems with their recovery.

Why is the UK outperforming most of Europe? There are obvious reasons, such as the debt and currency issues around Eurozone members, and certainly UK policy compared to France suggests that taxing business less is probably better for economic growth than the opposite!

But I wonder whether we are also beginning to see an effect whereby the best and the brightest (certainly in the case of young graduates from countries like France, Spain, Greece or Italy) are flocking to the UK because of better job prospects and maybe the magnet-like draw of London, the greatest city in the world. Might an influx of smart, dynamic, entrepreneurial types (and by definition, many will fit that description or they wouldn't be here) be helping the UK?

The strength of sterling is also becoming an issue. Great for our skiing holidays, but less good for exporters. Some of our sponsors who work with my US colleagues, as well as us at Spend Matters UK/Europe, contract in dollars. Those dollars are worth considerably less to me here than they were a year ago! That problem is similar for UK firms exporting to many parts of the world, which won't help the UK's attempt to re-balance the economy towards exports and investment, and away from consumption.

Anyway, few would have predicted this situation for sterling a couple of years ago, highlighting the risks around predicting currency movements. So firms and procurement practitioners need to be aware of the issues, and knowledgeable around currency hedging strategies and similar techniques.

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Voices (2)

  1. b+t:

    Daed cat bounciness variance

  2. John Jones:

    I think the smart, dynamic, entrepreneureul types have woken up and worked out that eurozone/land is,by virtue of the euro (the gift that keeps giving) going to implode within the next 3-5 years.

    Further, it will be the Italians and French, who are working out with alacrity the further loss of sovereignty that will be necessary to maintain the political EU project.

    Just remind me, and you are still surprised why thd uk economy (and the pound sterling) is doing so well?

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