Pessimism dies hard in the UK. Even so, the startling rise in sentiment seen in British business surveys in recent months calls for a rethink of the downbeat view of the economy that prevailed at the start of 2013. After several years of gloomy economic data, there was strong consensus that the country was permanently mired in a severe demand shortfall, and that none of the usual levers – monetary policy, fiscal policy or weaker sterling – could fix the problem. The outlook appeared so bleak that the government imported Mark Carney from Canada to devise emergency ways of easing monetary conditions.
By the time Mr Carney took office as Bank of England governor in July, however, the economy had begun an unexpected recovery. According to Fulcrum’s statistical model, which tracks all available data, economic growth in the third quarter is running at an annualised rate of 4.5 per cent, the fastest since the booms of the 2000s and the 1980s.
Nonetheless – not least given the UK’s patchy economic history – there are three main reasons for caution about the incipient recovery.