Although low-income families throughout the UK may be scratching their heads at the notion of an economically prosperous Britain, economists continue to talk positively about the nation’s fiscal portents. More specifically, recent reports have suggested that increased business confidence and investment in the UK has helped to lift growth and trigger an increase in national GDP of approximately 0.7% since October 2013. The total rate of business investment rose by a staggering 8.5% last year, as corporations look to make hay while the UK continues to narrow the economic gap with Germany.
British GDP Growth: The Truth behind the Figures
While these figures suggest that the recent upturn is likely to be continued successfully into 2014 and beyond, however, there is still much work to be done. According to leading economists, there are concerns that while the British economic recovery represents excellent news, its quality and sustainability may not be at the level that it needs to be for long-term stability. Any recovery that is driven by consumer and business spending is relatively parlous, as a change in sentiment can quickly stem this flow of cash and cause the economy to stagnate.
Another fear that surrounds the current recovery is that the increases in spending are being driven by heavy borrowing, as confidence rises and lenders adopt an increasingly relaxed approach to applications. Alongside the rising prominence of short-term lenders in the UK, there are genuine concerns that Britain could once again find itself trapped in a vicious cycle of sub-prime lending and long-term debt. This would undermine any long-term recovery, and ultimately bring the country to its knees once again.
How Should Investors Respond?
For investors, the next few months could be pivotal in determining their appetite for risk and exact trading strategy in 2014. The key question centres on whether or not companies are prepared to translate their investment intentions into tangible and concrete action, and make long-term plans that will help to support a more sustainable recovery. Until the existing level of confidence can be either confirmed or supported over a longer period of time, it will be almost impossible for investors to make definitive decisions or execute large orders. This could create something of a freeze in the financial market, as only bold and aggressive investors take the initiative to make their move.
For others, it is likely to be a period of watching and waiting. With real-time newsrooms and online brokers delivering hourly bulletins online and forecasting economic trends, there is sure to be a great deal of consternation among investors as they look to test the mettle of the UK’s burgeoning recovery. This level of caution may also hinder the nation’s recovery for a short period, at least until businesses and consumers have maintained their confidence for longer than a single financial quarter. One factor which may tip the balance is growth in the manufacturing sector, as this offers genuine hope for investors that Britain will maintain its course and challenge Germany as Europe’s Omni-potent economy during the next decade.