Economy expected to surpass pre-recession peak by summer
- Published on Monday, 10 March 2014 09:58
- Written by Daniel Mason
The UK economy will surpass its pre-recession peak in the second quarter of this year, earlier than previously expected, the British Chambers of Commerce has predicted.
In its latest economic overview published today, the BCC said that between April and June overall GDP would overtake the level it reached at the start of 2008 – three months ahead of what the business lobby group forecast in December.
The report said the economy would grow 2.8% this year and 2.5% in 2015, while wage growth would exceed inflation from the middle of 2014. However, amid the positive news the BCC also warned that youth unemployment would remain almost three times the national average jobless rate through to 2016.
"Our economic recovery is gaining momentum," said John Longworth, the BCC's director general. "Businesses across the UK are expanding and creating jobs, and our increasingly sunny predictions for growth are a testament to their drive and ambition.
"Our new forecast shows that the service sector is performing particularly well, and is likely to be a key driver of growth. And the manufacturing sector, although small, is pulling its weight too, and will play an important role in sustaining our recovery.
"But it's not time to break out the champagne glasses just yet. Major issues remain, such as the unacceptably high level of youth unemployment." He called on the chancellor, George Osborne, to use his budget this month to incentivise businesses to hire young people.
He also warned that Britain was "simply not investing enough" and business investment would "remain way below pre-crisis levels for some time". And he added that, ahead of the 2015 general election, politicians should not be "tempted to abandon a drive for long-term economic security in favour of short-term vote winners".
Meanwhile the Federation of Small Businesses said that confidence was continuing to rise. A survey of 3,000 businesses showed that 15% wanted to take on more people in the next quarter and 11% had done so in the previous three months. It also revealed that credit conditions had eased for small firms.
The FSB's national chairman, John Allan, said: "One again we see confidence on the up – and small firms leading the way in job creation. There is no doubt small businesses are pushing us further towards economic prosperity and it's so important to retain this momentum."
He said small businesses could do more, "for instance helping long-term unemployed youngsters back to work and as the economy continues to improve, boosting wages for the low-paid".
As both the BCC and FSB reports highlighted the continuing problem of youth unemployment, Labour said it would guarantee a job for all young people out of work for a year or more if it wins the 2015 election.
Anyone who refused the job offer would have their benefits sanctioned, the party said, adding that the scheme would be funded for the full five-year parliament. The scheme would also apply to over-25s unemployed for more than two years.
It would be funded by a tax on bankers' bonuses and by restricting pensions relief for people earning over £150,000 to the same level as basic rate taxpayers.
In a speech today, the shadow chancellor, Ed Balls, will say: "It's shocking that the number of young people stuck on the dole for more than a year has doubled under David Cameron. For tens of thousands of young people who cannot find work this is no recovery at all.
"We've got to put this right. So if Labour wins the next election we will get young people and the long-term unemployed off benefits and into work. The government will work with employers to help fund paid work with training for six months. It will mean paid starter jobs for over 50,000 young people who have been left on the dole for over a year by this government.
"But it will be a tough contract – those who can work will be required to take up the jobs on offer or lose their benefits. A life on benefits will simply not be an option."
Under the scheme, the government would pay for the wage and employer's national insurance contributions for 25 hours over six months at the national minimum wage, as well as an additional £500 per employee towards administration and training costs.
But the Conservatives dismissed the promise. The financial secretary to the Treasury, Sajid Javid, said: "Labour's sums don't add up. They are proposing yet more unfunded spending, meaning more borrowing and more taxes to pay for it."