Business optimism swells with sustained economic expansion

Growth forecasts for the UK are the highest of G7 countries – at 2.5 per cent predicted for 2008 and 3 per cent for 2009 – but the UK is circumspect about what it sees as a long-term, consistent upward trend.

The Treasury forecasts average annual growth of 2.75 per cent – a target matched or beaten in the past 15 consecutive months.

Yet its forecasts have been marked by caution and the UK has consistently refused to oversell macroeconomic growth.

In fact, the International Monetary Fund (IMF) reported the UK’s figures for the first quarter of 2007 as showing growth above forecasts for the fifth consecutive quarter.

The key to success

The key to growth has been the creation of a stable economic environment that enables business to flourish.

One result has been a year-on-year increase in business investment of 7 per cent in 2006-07, with forecast growth of 7 per cent in 2007-08.

A competitive tax regime has helped to attract inward investment.

UK closes productivity gap

The 2007 Budget introduced measures to maintain a competitive business environment that compares favourably with European competitors, including a reduction in corporation tax from 30 per cent to 28 per cent.

Our report expects much stronger growth in the UK than in the Eurozone over the longer term

In productivity, too, the UK has made progress in the tables of international competitiveness.

Peter Hemington

Partner

BDO

Since 1997 it has closed the productivity gap with Japan and Germany, and halved that with France.

The economic outlook

Despite the impact of the recent US slowdown and inflationary pressure, independent analysts are predicting continued growth.

A report published in spring 2007 by accountancy firm BDO Stoy Hayward pointed to the UK’s continued resilience.

“Both Britain and its neighbours on the Continent face the same global inflationary pressures,” says BDO partner Peter Hemington.

“However, our report expects much stronger growth in the UK than in the Eurozone over the longer term.”

Business optimism

Meanwhile, a survey of industrial trends by employers’ organisation the Confederation of British Industry (CBI) found manufacturing demand stronger than at any time in the past decade.

Business optimism, overall, is at its highest since 2004, because, in addition to an entrepreneurial environment, the UK has a burgeoning domestic market that belies the country’s modest geographic size.

Per capita income has risen from seventh among G7 countries in 1997 to second (behind only the US) in 2007.

“Manufacturers are optimistic for the year ahead. The strong pound is a threat – but they're still optimistic,” says CBI spokesman Stephen Cooke, pointing out that the Eurozone is “positive and growing” as the UK’s major export market.