Growth To Accelerate 
According to the British Chambers of Commerce (BCC), UK economic growth will accelerate faster than first thought in 2014, with key indicators for the economy now higher than before the start of the financial crisis.

The BCC’s latest quarterly survey of almost 8,000 firms indicates that the overall economy grew by around 0.9 per cent in the last quarter of 2013, compared with 0.8 per cent in Q3.

Domestic sales and orders among firms in the services sector grew at the fastest rate in more than nine years and export sales and orders were the highest since the BCC started keeping records in 1989.

In addition, five key manufacturing balances were also at all-time highs, allaying fears in the third quarter that the growth spurt in manufacturing was temporary.

Domestic orders rose by 35 per cent, turnover confidence was up 67 per cent and profitability confidence rose by over 50 per cent.

The survey also shows that employers were looking to increase hiring over the period, with a balance of 27 per cent of service firms and 31 per cent of manufacturers planning to increase headcount in the next three months.

Employment statistics are being closely monitored by the Bank of England, which pledged in August to keep interest rates at record lows until unemployment falls to at least 7 per cent. However, with the rate falling sharply to 7.4 percent in recent months, the Bank stressed that its 7 per cent threshold is not an automatic trigger for a rate hike.

Despite the positive results, the BCC still warns that the recovery must be maintained, as risks persist around access to finance for firms looking to expand to meet demand from growing customer orders.

For more information, speak to Rickard Keen, Accountants in Essex.

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Lending To SMEs Finally On The Rise 
Financial commentators have welcomed last week’s data from the Bank of England showing that, although lending to businesses fell overall in November, net lending to small and medium-sized enterprises (SMEs) rose by £140m after four consecutive months of falls.

Net lending, which is the difference between loans paid out by banks and the amount repaid, had been negative for SMEs between July and October. However, the new figures show that it increased by £200m in November, although net lending to all non-financial businesses fell overall by £3.1bn.

Meanwhile, the data showed that firms paid off £4.66bn of debt, the single largest monthly repayment since the Bank started keeping records in May 2011 and almost five times the £1bn average monthly fall in net lending last year.

The figures come after the Funding for Lending Scheme (FLS), launched in 2012 to encourage loans by offering banks cost-effective finance in exchange, was strengthened late last year to skew incentives towards SME financing and from next month (February) funds will only be made available under the FLS for business loans.

A spokesperson for the British Bankers' Association (BBA) welcomed the statistics, saying that gross lending to SMEs, which stood at £4bn in November, was now 38 per cent higher than the £2.9bn seen in the same month the year before, before adding that this was more good news for the economy at the start of the New Year.

They said that positive net borrowing and on-going double digit growth in gross lending show that SMEs are feeling more confident about investing and a low interest environment is helping the recovery.

For more information, speak to Rickard Keen, Accountants in Essex.

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Rates To Stay At Historic Low During 2014 
Interest rates in the UK are unlikely to rise this year from 0.5 per cent, according to a survey of the UK’s top economists, although more than half of those polled believe they will rise in the first half of 2015.

The survey, conducted by the BBC, showed that 93 per cent think interest rates will remain as they are now, although more than 40 per cent believe that unemployment will fall to 7 per cent this year, from its current rate of 7.4 per cent.

Bank of England Governor, Mark Carney, said in his forward guidance that he would consider raising the rate once unemployment hits this figure but the economists polled still believe that this will not happen until 2015, revealing that there is possibly more uncertainty amongst them around unemployment than there is about the rate.

Although more than 40 per cent think the jobless rate will hit 7 per cent this year, exactly half think it will not until 2015, while 8 per cent think it will not be until 2016, which was Mr Carney’s original prediction.

The majority of those polled also think that wages will finally start to rise faster than inflation during 2014, which should ameliorate recent concerns that there has been a fall in living standards in real terms.

However, their views on the rest of the Eurozone are less optimistic, with half of them believing that the crisis is not yet over. Meanwhile, of those who believe it is, many think that problems could easily reoccur.

One-third of those polled think that the economy there will grow by more than 1 per cent this year, while two-thirds believe its will grow by less than that amount and almost 20 per cent of these think that growth will be as low as 0.5 per cent, or even less.

For more information, speak to Rickard Keen, Accountants in Essex.

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UK Could Be Largest Economy In Europe By 2030 
According to the Centre for Economic and Business Research (CEBR), the UK could be in a position to overtake Germany as the largest economy in Europe by 2030.

The think tank cited growth in population, a low-tax regime and insulation from the worst of the problems in the Eurozone for the increase in the UK’s economic success.

According to the report, in addition to the UK's population growth boosting economic expansion, "lesser dependence on other European economies" would also aid progress, as well as "relatively low taxes by European standards."

However, as far as Germany was concerned, the CEBR said that, should the Euro "break up", then its outlook would “be much better”, while predicting that France will be one of the "worst performing" of the Western economies, and will be overtaken by the UK by 2018 because of slow growth due to "high taxation" and the “general issues of Eurozone economies”.

At the same time, the CEBR predicts that emerging economies, such as India, Brazil and Russia, will push the UK down the overall rankings to number seven but the country will be the second most successful Western economy behind the US.

Meanwhile, the US itself will lose its position as top economy in the world to China by 2028, by which time both will be five times as big as India, which is predicted to be in third place.

The CEBR said it used forecasts for growth, inflation and currency values to compile league tables of the size of economies measured in US dollars in 2013, 2018, 2023 and 2028. However, it said that its predictions needed to be treated with caution, especially in light of the unpredictable fluctuations in currencies.

For more information, speak to Rickard Keen, Accountants in Essex.

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Reconsider Help To Buy Says Cable 
Business Secretary Vince Cable suggested over the weekend that the Government should reconsider its Help to Buy scheme amid fears that it has boosted house prices too quickly and could cause a new housing bubble.

Dr Cable told Andrew Marr yesterday (December 22) that the scheme needs to be looked at again, as it was conceived “in very different circumstances” and is also causing concern for ratings agency Standard & Poor’s, which re-awarded the UK a triple A rating only last week,

Concerns have grown as, under the second phase of the scheme, first-time buyers need only provide a small deposit when buying a property, with the Government offering a guarantee of 15 per cent of the loan on homes valued at no more than £600,000.

It has been suggested that these new loans are fuelling an artificial demand for property and critics have expressed concerns about how it can be brought to an end.

However, the Bank of England, which has been given a ‘tool kit’ by the Government to act if prices rise too fast, says that it is watching the housing market very carefully.

A spokesperson for the Bank said that it will use its powers to make sure a "free-for-all" in the mortgage market is avoided. They added that the regulator could force banks to hold more capital or ask for more stringent mortgage checks should the need arise.

The Bank has already refocused the Funding for Lending Scheme (FLS) on business rather then on individuals. Under the scheme, banks and other lenders could borrow money at very advantageous rates from the Bank as long as they passed them on to borrowers.

Dr Cable remarked that the decision to reform the FLS terms had been “very wise”.

For more information, speak to Rickard Keen, Accountants in Essex.

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