Britain’s economy will grow next year at the fastest pace since 2007, but economists polled by Reuters say the recovery is reliant on household spending and rising house prices.
The strength of the UK’s upturn over the last six months has been one of the biggest economic surprises of 2013, and there was a clear consensus that the momentum would carry through into next year.
Wednesday’s poll showed the UK economy will grow around 2.4 percent next year, far outpacing most of its euro zone peers and its best showing since succumbing to the global financial crisis in 2008.
That compares with expected growth of 1.4 percent this year.
But while there is little doubt about Britain’s capacity for economic growth, there are question marks over its foundations.
Twenty out of 28 respondents in Wednesday’s Reuters poll described the recovery as unbalanced and reliant on consumer spending and the housing market.
Of the remainder, only two thought it was broad-based, and six said there was a mix.
“UK economic upturns are usually paced by the housing market and consumption spending. They are only sustained if capital investment subsequently kicks in,” said Stephen Lewis, chief economist at Monument Securities.
“It is presently far from clear this will happen in the current cycle.”
Bank of England Governor Mark Carney last month said business investment takes time to pick up during recoveries, and that would be supported by improving credit conditions.
The latest poll matched Carney’s expectation that quarterly rates of growth would ease back a little, to around 0.5-0.6 percent from here after the economy expanded 0.8 percent in the third quarter.
The survey also showed the UK’s unemployment rate would fall to 7.0 percent – the Bank of England’s threshold for discussing an interest rate rise – by the second quarter of 2015. That is slightly sooner than in previous polls.
Appearing before lawmakers last month, Carney cited a Reuters poll that showed economists do not expect the Bank to raise its main interest rate from its record low of 0.50 percent as soon as the 7 percent jobless rate is reached.
In his autumn statement last week, finance minister George Osborne said he sought “a responsible recovery” that doesn’t repeat the mistakes of the past, this time spotting debt bubbles before they threaten financial stability.
However, memories of the last housing bubble and consumer debt splurge that led to 2008’s bust are still fresh.
Reuters polls over the last few months have been clear that the government’s housing market stimulus risks creating a new housing bubble, and economists have shown scepticism about the Bank of England’s ability to curb that.
Still, economists were upbeat about growth next year, whatever its source.
“It was always unrealistic to suppose that the UK would be able to generate the kind of broad-based export-led recovery which the government hoped for,” said Peter Dixon, economist at Commerzbank.
“But there are indications that manufacturing is pulling up a bit and that consumers remain reluctant to take on excessive levels of debt.”
Dixon said it was likely the recovery will be relatively slow, and the “feel-good factor” would take some time to get through to people.