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The Economics Story: … Constrained Recovery?

Insight on the current state of the economy and how it relates to Dorset by Nigel F Jump, Chief Economist of Strategic Economics Ltd (a Dorset Company) and Visiting Professor in Economics at the Universities of Bath and Plymouth.

See: www.strategiceconomics.co.uk

In the first half of 2014, the UK economic recovery was robust.  After six years, the UK downturn (the period in which aggregate output stayed below the previous peak) ended.  With the economy now marginally above its previous high, the forecasting consensus expects the UK real growth rate to be over 3% for the year as a whole. 

At a regional or local level, recent short-term evidence has been good.  Most recent SW surveysreport a solid expansion of business activity with higher orders and employment.  There is more confidence in manufacturing and services, although investment and employment prospects remain modest.

In 2015, real growth is forecast to slow.  As well as weak foreign market conditions, this reflects fundamental constraints on the economy’s recovery.  First, there is no sign of a rebalancing of supply.  In aggregate, the shift back towards manufacturing is a mirage – even though some individual manufacturers are doing well.  Second, on the demand side, there is a relatively slow upturn in business investment and a negative contribution from net exports.  With real household incomes and real GDP per capita below previous peaks, a consumption-led recovery could have short legs.  Third, the bottom line is that productivity growth is inadequate and the trade deficit is enormous. 

Unless they change, these trends mean the recovery could struggle.  In the months ahead, we will be hoping to see the emergence of a new balance in the constituents of growth.

Professor Nigel Jump, 29th August 2014

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