Arab Today, arab today britains economic recovery consolidates risks ahead
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Britain's economic recovery consolidates, risks ahead

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Arab Today, arab today Britain's economic recovery consolidates, risks ahead

Economic recovery in Britains
London - XINHUA

 With the last economic data released on Friday, British economic recovery showed a fresh sign of consolidation. But some institutions and experts warn that significant risks, highlighted by continuing mounting house price, would probably de-trail the rehabilitation.
GfK, a British polling company, Friday announced that its monthly consumer confidence index climbed to zero this month from negative three (-3) a month prior. This was the highest level of the gauge since April 2005, and exceeded market estimation consensus of negative two.
HOUSEHOLD CONFIDENCE SOARS
British consumer sentiment hit a nine-year high in May, and it is supposed to add fuel to rosy economic recovery in the near future, according to GfK.
Nick Moon, managing director of social research at GfK, said in a statement:" The real driver of the increase is people's assessment of the general economic climate. There was a massive eight point jump in the retrospective assessment of the last 12 months and a four point increase in confidence about the next 12 months."
On the same day, however, the British Chamber of Commerce (BCC) announced that it has upgraded its growth forecasts of the country for the next two years. The lobby body expects a growth rate of 3.1 percent this year, and a 2.7 percent next, higher than its previous estimation of 2.8 percent and 2.5 percent respectively. Growth race in 2016 would maintain at 2.5 percent.
Earlier this month, Bank of England, the British central bank predicted that the country's economy would expand by 3.4 percent in 2014, the fastest pace since 2007.
Samuel Tombs, UK Economist of Capital Economics, commented in an analysis piece:" The further improvement in GfK's consumer confidence report in May suggests that the recovery in household spending could gather even more pace soon."
The London-based economic research company said it is sticking with its forecast that real household spending will grow by about 2.5 percent both this year and next.
IMBALANCE AHEAD
Though a large proportion of economic indicators this year adding signs of recovery pick up, the consensus on smooth growth race in 2015 and 2016 is demonstrating the other side of the economy -- imbalance.
John Longworth, director general at BCC, said in a statement that Britain still has a lot of work to do to ensure long-term growth prospects, and the expected slowdown in growth in the next two years is a "warning sign" that the country is overly reliant on consumer spending as a driver of growth.
Figures offered by Office for National Statistics (ONS) this month outlined the benign performance in British households.
British unemployment rate dropped to 6.8 percent in the three-month to March, down from 7.2 percent for October and December 2013. Consumer price index (CPI) grew by 1.8 percent in the year to April, and price prospect remain mild over the next two years, turning households' real income growth into positive.
On the other side, however, Britain saw a 8.5-billion-pound (14.25-billion -U.S. dollar) of deficit on trade in goods in March. Exports of goods declined by 3.7 percent to 72.0 billion pounds, and imports of goods also shrank by 2.8 percent over the same period to 33.1 billion pounds. The indicators raised concerns on the flat business investment, and imbalance of economic structure.
"Everything possible must be done to avoid slower growth in future... To sustain investment momentum into the future, the government and the Bank of England need to give business the confidence they need to invest," said Longworth.
Meanwhile, Britain also bears hefty debt and deficit in the public sector side.
Britain's public sector net borrowing or fiscal budget deficit in the fiscal year 2013/14 was 107.4 billion pounds, said ONS in late May. At the end of April 2014, British public net debt was 1,270 billion pounds, equivalent to 75.6 percent of the country's GDP.
Economists said British public finance made for less encouraging reading, and the fiscal consolidation has got off to a poor start to the fiscal year.
HOUSING MARKET BUBBLING
Market expectation on sustainable growth of British economy is adding fuel in the booming housing market.
The annual change in London was up 17 percent in April, said the Land Registry, an executive agency and non-ministerial department registering the ownership of land and property, last week. And according to ONS earlier this month, British average hose prices jumped by 8.0 percent in the year to March 2014, when London leading with a 17 percent increase.
Over the year in 2013 however, Britain's housing prices rose by 9.2 percent in 2013 and 18.2 percent in London, data showed by Britain-based Nationwide Building Society (NBS).
The mounting house prices, and rent fare consequently, not only lead to complaints on the government's house market stimulation policy from ordinary people, but also worrying from the regulators.
Mark Carney, BoE's governor, noted in late May that the out-of-the-reins housing market is the "biggest risk" to financial stability and the long-run recovery.
The central bank is "closely watching" rising property prices and the subsequent increase in large-value mortgages, which could lead to a "debt overhang" that might destabilize the economy, warned Carney.
"Help to Buy (stimulation policy) is a relative small program at this point, but it could grow a lot and it could change attitudes in other parts of the mortgage market. That's why we have to be vigilant," said Carney.
Therefore, how would housing market evolve in the near future? Though maintaining the current high level or even performing in low growth is the market consensus, some institution believe that market auto-correction might take effect eventually.
"My view is that in London we will see a natural correction through the summer months. That intense heat does seem to be dissipating a bit. We could be seeing the early signs of a natural correction," said Graham Beale, chief executive of NBS. (1 pound = 1.68 U.S. dollars)

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