Goldman Sachs Confident on UK Continued Recovery

July 15, 2014 Share Print 0

The UK economy appears finally to be breaking free from the shackles of the financial crisis of 2007 and 2008.

According to the Office for National Statistics (ONS), output in the economy has risen by 3% in the past year, putting it 0.6 percentage points below the pre-crisis high. That high is likely to be surpassed later this month, when the ONS releases its first GDP estimate in the second quarter.

Other indicators suggest that growth in the past year has been stronger than recorded by the official GDP data. Goldman Sachs’s UK current activity indicator (CAI) – which distils information from a broad range of business surveys, labour market data and other indicators – suggests growth in the past year has been closer to 4%.

The ONS’s GDP estimates tend to be revised significantly over time and these alternative measures of activity have historically provided a good guide to the likely size and direction of future revisions. We expect the ONS to revise its data to show that the economy superseded its pre-crisis high some time last year.

With the economy having disappointed for so long, there is a lively debate among economists as to why there was such a sharp turnaround early last year.

In our view, two factors have been important in driving the recovery. First, UK banks are now willing to lend to households and businesses in a way that had not been the case in the five years following the start of the crisis. This easing in the availability of credit was, in turn, a consequence of two factors, the Bank of England’s decision to launch the Funding for Lending Scheme and the abatement of the eurozone crisis in the second half of 2012. Both had the effect of lowering the funding costs of UK banks.

via The Guardian

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.