Britain has recently solidified its position as one of the fastest growing economies in the industrial world, after recording third-quarter growth this year of 0.7 per cent.
The figure aligned with the expectations of many City economists. With the economy a full 3 per cent bigger than it was during the same period last year, the UK now sits near the top of the growth table of the Group of Seven (G7) economies.
Indeed, since the financial crisis, the pace of the UK recovery has outperformed all its Eurozone neighbours. Nevertheless, political uncertainties surrounding the upcoming general election could potentially hold UK businesses back from investing in 2015, the forecasting group EY ITEM Club has suggested. Growth across the UK could be impacted by concerns surrounding EU economies and the conflict in Ukraine, the group said.
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So what can the UK expect for 2015? How will growth differ in the key regions around the UK and how different does the outlook appear for the UK’s main industries?
An uneven recovery
Some analysts say that the UK economic recovery has been unbalanced, fuelled primarily by consumer spending and business investment, but missing the critical pillar of trade. Ray O’Donoghue, Head of Midlands and Wales, Corporate Banking, Barclays, agrees. “If you take a national picture, I would agree that the recovery has been uneven,” he says, “and regionally there has been some variance. London and the South East have seen particularly strong growth but there has been growth across all the regions.”
In O’Donoghue’s view, part of the reason for the unevenness may be to do with what is driving the UK recovery: “The domestic recovery has been investment and consumer-led, which on one view could be said to offer us a great deal of stability. However, what the country needs is more exporters and newer markets. We can’t just rely on our traditional trading partners, such as Europe.”
Global trade partners
Some analysts say that the idea of expanding into markets outside of Europe actually presents an opportunity for many businesses who may build on their European trade, adding partners in fast-growing markets such as Asia and Africa.
“The gap between UK imports and exports has narrowed, which is good,” says Mike Daniels, Co-Head of London, Corporate Banking, Barclays. “We are still working with traditional European trade hubs, and of course we can’t forget the US. I don’t see that going away but there is another story to tell; we are not going to swap one country for another, but we will see new countries with which we do business increasing their share. For example China and Africa - both are hugely important to UK trade going forward.”
Regional growth
So aside from trade, where is the UK’s greatest growth coming from? The latest economic indicators from the Office of National Statistics show that the economy all across the UK has been improving, but some regions have been performing better than others.
According to the ONS, every region and country in the UK experienced nominal growth between 2009 and 2012 (when the most recent data was compiled).
The ONS data shows that London has outperformed the rest of the UK from the downturn and through the recovery; “London’s nominal Gross Value Added rose by 15.4 per cent over the period 2007 to 2012 compared with 6.9 per cent for the rest of the UK.”
Other regions performed well, however, including the South East, closely followed by the East and West Midlands. London’s employment rate also grew by 3.5 per cent from Feb–Apr 2007 to Feb–Apr 2014, where the rest of the country remained pretty much steady (down by 0.1 per cent).
A stop-start recovery?
According to O’Donoghue, growth can be seen in many regions around the UK, but he warns that ups and downs are to be expected in both the short and medium term.
“Almost unanimously, businesses I speak to have increased confidence for 2015, although the lead indicators show some mixed news. No one should be at all surprised if next year is a bit stop-start.”
Such fluctuation is to be expected, O’Donoghue says: “We are coming out of the worst recession in as long as most people can remember; we are trying to get back on top of the deficit. Plus we have an election around the corner and there is a good deal of global uncertainty in terms of the West’s relationship with Russia, the events in the Middle East and so on.”
Nevertheless, there has been growth across a broad range of industries in most major regions around the country. O’Donoghue identifies six growth hotspots for 2015 as key to UK recovery: “Birmingham because of its manufacturing capabilities and automotive sector; Manchester because of its creative strengths, its pioneering sense of innovation and strong manufacturing base; Bristol due to its strength in specialised engineering and because it remains a leading service centre; the oil and gas industry in Scotland; Cardiff due to the quality of its manufacturing; and the Thames Valley and Cambridge due to its innovation in technology and sciences.”
Growth by industry
While much of the growth in the UK is coming from London, it would be an overly simplistic view to assume that the economic resurgence starts and ends in the Capital, says Daniels. Industries around the UK are contributing to the country’s recovery including the telecommunications, media and technology sector, which is seeing “remarkable growth”.
Daniels identifies a broad range of industries that have contributed to the nation’s economic growth: “Manufacturing and transport are obviously very important for the economy due to their close links with the UK’s GDP. Food and drink is beginning to reshore as businesses bring production that has been being carried out elsewhere back to the UK. Aerospace is in a period of huge growth. In the automotive sector, the number of units being produced at the moment has never been higher.”
He continues: “The service sector represents three-quarters of the UK’s economic output. Hospitality and leisure has undergone a period of change recently, as it adapts to the rise and falls in people’s discretionary spending ability. And increasingly UK hotels are benefiting from the fact that the UK economy has been fairly resilient.”
Looking ahead
So what is the common thread that links the more successful industries and regions across the UK and what do businesses need to do in 2015 to maintain their positive momentum?
According to Daniels, businesses that have done well in 2014 and will continue to profit in the year ahead will be “those that are putting the customer first and using data properly to deeply understand the customer experience. On top of this, being agile is essential. You really have to be fleet of foot. Businesses simply can’t set out towards 2015 on the basis of this year’s experiences. Life will have moved on in 18 months.”
He adds: “Cashflow transparency is also critical. And the biggest thing for most companies remains keeping on top of technology and innovation. You ignore advances in tech and social media at your own peril.”
O’Donoghue agrees: “There is a digital revolution and it is happening now. It is a case of being part of it or being left behind. Not only is this revolution helping to change businesses but it is also opening up new business models. As new technologies come out, new industries come with them. 3D-printing and laser cutting have opened up whole new areas of manufacturing for example.”
O’Donoghue says that the key to continued growth in 2015 will be for businesses and industries across the country to maintain confidence, even in the face of any setbacks that may arise: “There is a lot of optimism around and we need to keep building on it. We need to keep confidence. I do think it could be a bumpy road because of the various headwinds we face, but the key is to anticipate them and just to keep moving forward.”
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