British economy showing signs of life
The proportion of UK services companies reporting rising exports rose to a record high in the second quarter, according to a closely watched survey by the British Chambers of Commerce.
The balance of exports for services rose to 36 per cent between April and June, the highest since the survey began in 1989. This figure is the difference between the percentage of companies with rising and falling exports.
Exports from the manufacturing sector also picked up, according to the survey, a finding reinforced by a separate survey showing a boost in new orders helped factory activity rise at the fastest pace for more than two years in June. The gauges for employment, business confidence, and profitability also rose in the second quarter of the year.
However, some continuing signs of frailty mean Dr Carney is unlikely to have completely escaped inheriting what he recently described as a "crisis economy".
"The improvement in most key balances in Q2, building on the upturn recorded in Q1, supports our view that the UK economy is slowly strengthening," British Chambers of Commerce chief economist David Kern said.
If progress could be sustained, there were "realistic hopes" the chambers' estimate that the economy would grow 0.6 per cent this year would be revised up, he said.
ING economist James Knightley said the British economy was on course for posting faster growth in the second quarter than it did in the first three months. He estimated GDP grew 0.4 per cent to 0.5 per cent in the second quarter, after expanding 0.3 per cent between January and March.
Key barometers of activity in the construction and services sector by financial data compilers Markit, are also expected to show improvement on their release this week.
However, economists warned that recent upward trends in the UK economy may not be sustainable against weakening activity in the US and China.
Despite the rise in many of the chambers' measures of business activity, most remained below pre-crisis levels. The survey also exposed worrying signals that businesses could lack the strength to drive a robust recovery. The proportion of services sector companies planning to grow investment in equipment fell in the second quarter, while cash flow remained weak in both sectors.
Mr Kern highlighted the turmoil in the global markets sparked by the US Federal Reserve's move to unwind quantitative easing, and ongoing troubles in the eurozone, as the main threats to recovery in the UK.
Commentators on the separate manufacturing data also were cautiously optimistic.
Frequently Asked Questions about this Article…
Surveys in the second quarter showed several improving indicators: a record rise in services exports, pickup in manufacturing exports, faster factory activity in June driven by new orders, and rising gauges for employment, business confidence and profitability—all pointing to a slowly strengthening UK economy.
The British Chambers of Commerce survey found the balance of services exports rose to 36% between April and June—the highest since the survey began in 1989. Strong services exports can support corporate revenues and help sectors linked to trade, so investors may view this as a positive sign for UK-listed service firms and the broader economy.
A separate survey reinforced the Chambers' findings: new orders helped factory activity rise at the fastest pace in over two years in June, and exports from the manufacturing sector also picked up, suggesting improving demand for UK-made goods.
ING economist James Knightley estimated UK GDP grew about 0.4%–0.5% in the second quarter, up from 0.3% in the first quarter, indicating momentum may be building after a slow start to the year.
Despite improvements, many business activity measures remain below pre-crisis levels. The survey showed weaker cash flow and a fall in services firms planning to grow investment in equipment. Economists also warned that gains may not be sustainable if activity weakens in the US and China, and global risks include the US Federal Reserve unwinding quantitative easing and ongoing eurozone troubles.
Mark Carney received a warm welcome as the UK showed increasing signs of revival. However, the article notes he still inherits a 'crisis economy' with lingering frailty—meaning monetary policy decisions will take place against a backdrop of modest recovery and significant external risks.
Yes. The British Chambers of Commerce said if the Q2 improvements can be sustained there are 'realistic hopes' its estimate that the economy would grow 0.6% this year could be revised upward.
Investors should watch upcoming Markit activity gauges for construction and services, further surveys on business confidence, employment and profitability, official GDP updates, and global developments (US and China activity, Fed policy and eurozone conditions) that could influence the sustainability of the UK recovery.
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