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Economic growth falls short of Office for Budget Responsibility 3% forecast in 2014

January 27th, 2015

While 2014 saw the most significant rise in economic growth since 2007, today’s release of the latest gross domestic product figures is likely to confirm that the predicted target of 3%, as outlined by the Office for Budget Responsibility last year, was not met. Expectations are that the true figure will be closer to the 2.6% prediction from the International Monetary Fund, which recently chose to revise the expectations for UK growth down from 3.2% for the past year.

The UK was not the only country to see a reduction in the IMF outlook for economic growth in 2014. The US was to some degree the minority, with most countries receiving a revised indication of economic stability. Although the IMF’s view of 2014 would suggest that a similarly negative projection for 2015 would follow, their recent confirmation that a steady increase to 2.7% would be a realistic expectation provided tentative hope that the improvement in economic activity for the UK would not grind to a halt.

Several factors have applied reason to the change in outlook for the past 12 months, with a month on month reduction in the size of the construction industry being an important element. In 2014, the Office of National Statistics noted that this sector had reduced in size by 2 per cent, suggesting that the apparent surge in property building and purchase activity in the UK was beginning to falter.

During the same period the export industry saw a minor dip to 0.4 per cent of previous output, the production industry reduced by 0.1 per cent and investment in business dropped by 0.7 per cent. However, the manufacturing sector continued to see rapid growth as a whole, and business investment had risen by 6.3 per cent on the respective stage in 2013.

Certain key events in the retail industry helped to bolster ailing growth in the final quarter of 2014. A spike of 5 per cent growth has now been quoted by retailers for the period, with particular acknowledgement to the Black Friday and Cyber Monday sales having a substantial impact on what was the biggest increase in output for over 10 years in this sector.

Economists have had their say on the matter, with many noting that the outlook for 2015 appears to be positive, despite the recent revisions made by the IMF. From IHS Global Insight, Howard Archer said:  “We expect GDP expansion to have eased back slightly further to a still decent 0.6% quarter-on-quarter in the fourth quarter of 2014.

“Ongoing robust services expansion likely ensured that GDP growth held up pretty well in the fourth quarter but it was likely hampered by contracting construction activity and only modest industrial production expansion. Consequently, fourth quarter GDP growth was likely not as balanced as hoped for. While political uncertainty poses a significant downside risk, we are largely upbeat about growth prospects for 2015.”

Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy

Media Contact: Raman Kaur, Public Relations Manager

Tel: 01489 555 080

Email: media@contractormortgagesuk.com

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