UK recovery is building momentum - ITEM Club comments on today's PMI manufacturing figures and lending data

1 July 2013

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Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, comments on today’s PMI manufacturing figures:

“Today’s figures provide more evidence that the recovery is building momentum nicely. It is particularly encouraging that firms are reporting stronger order books, both at home and abroad, which gives us some confidence that this upturn has legs.
 
“We know that Q2 GDP growth was good – it’s just a question of how good. Looking at the monthly data we have, plus the surveys, we think that a reading of 0.5-0.6% is likely. But for once the risks are probably on the upside, particularly if the volatile construction figures come in strongly.
 
“The big challenge now is building on that momentum in the second half of the year. The run of better data in the US and Eurozone is supportive, but this is mitigated to some extent by the weaker data from China and other emerging markets.”
 
Commenting on today’s lending figures, Andrew Goodwin added:

“A very encouraging set of data for the mortgage market, where we are really seeing the fruits of both the Funding for Lending Scheme and the first leg of Help to Buy. Improving mortgage availability will not only help those at the bottom of the market, but also those further up who have been struggling to establish chains because of a lack of buyers.
 
“FLS is also having a significant impact on mortgage rates, with the average interest rate on new deals having fallen by almost 60bps since the scheme started. This is helping to support demand, but is also likely to be a factor in the strong pickup in remortgaging activity which should help households to free up funds to spend in other areas.
 
“The real challenge now is to get housebuilding moving and we would hope that signs of increasing activity and rising prices would be enough to nudge the housebuilders into action. The sharp decline in residential investment has been a sizeable drag on the economy in the past few years but, if this reverses, it has the potential to provide some solid support to the recovery.”