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The UK Economy Is Bouncing Back

The UK economy is growing faster than expected — hurrah!

At least, that’s what the Confederation of British Industry (CBI) and the British Chambers of Commerce (BCC) are telling us.

The CBI’s most recent survey of businesses has shown growth extending well into the second quarter, with May’s growth the highest since 2003. Deputy director-general Katja Hall pointed to “rising business and consumer confidence, better credit conditions at home and improving global economic conditions” as being behind the improvement, going on to describe the growth as “broad-based“.

bullBetter than 3%

Meanwhile, over at the BCC, we’ve seen growth forecasts for this year raised from 2.8% to 3.1% — with a 2.7% rise (up from 2.5%) predicted for 2015, followed by 2.5% in 2016.

With the Bank of England hinting at an interest rate rise before too long, as inflation starts to pick up a little, the BCC has urged caution in order to keep the fledgling recovery on track and not damage the improving business confidence that lies behind it.

After growth of 0.8% in the first quarter, we’ve been enjoying a rising retail market with consumer confidence getting better, although many people are still feeling the pinch.

The recovery is also backed by the manufacturing sector, with output on the up. And overall, the UK economy seems to be leading the way out of recession ahead of the troubled Eurozone.

John Longworth, director-general at the BCC did caution, however, that the growth of the UK economy is “overly reliant on consumer spending” — and we have seen the biggest booms and busts on the high street.

Retailers with prospects

CurrysBut a growing retail-led recovery could be pretty nice for some of our favourite companies. Dixons Retail (LSE: DXNS) pulled off a near-miracle in its recovery after being almost dead in the water, and part of that has been due to its tardy but eventually strong move into on-line selling.

The next phase will be the merger with Carphone Warehouse (LSE: CPW) — and while some are doubtful of the wisdom, there is great potential there if it’s carefully managed. After all, phones and other computing devices are at the front of the non-essential spending market.

Others that should hopefully benefit include Home Retail (LSE: HOME), which has been through a bit of an Argos-led retail surge over the past year. The shares are up more than 20% over the past 12 months, and we have double-digit growth forecast for the next two years.

Others like Kingfisher (LSE: KGF) (NASDAQOTH: KGFHY.US), owner of B&Q and Homebase, haven’t been recovering quite so well, but it’s not surprising if the DIY market lags the rest of the retail sector — and Kingfisher does carry out a lot of its business in the still-troubled Eurozone.

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Alan does not own shares in any companies mentioned in this article.