Member Article

North East GDP expected to grow 1.8% in 2014

The North East economy is projected to grow 1.8% in 2014, and non-financial service sectors are expected to remain the “engine of growth.”

According to research from PwC house prices in the region have also risen this year by 0.1%, which is lower than the national average of 2.9%, but this is in line with the rest of the UK regions outside of London.

Nationally the report projects UK GDP growth to pick up gradually to around 1.4% in 2013, rising to around 2.4% in 2014. Meanwhile inflation has remained stubbornly above target at an average of around 2.7% in 2013 which is expected to subside only slightly to 2.4% in 2014.

However there still could be upside risks to this inflation outlook if stronger global growth in 2014 pushes up commodity prices again.

Bill MacLeod, incoming senior partner, PwC Newcastle said: “After a couple of sluggish years in 2011 and 2012, the North East economy is showing clear signs of recovery this year and is now gathering real momentum. The services sector has been leading the growth but latest data sources indicate that manufacturing and construction are also now starting to recover.

“Given persistent above target inflation, we do not expect any significant further easing of monetary policy. Attention could eventually turn to higher interest rates, although possibly not until late 2015, which is when we project the national unemployment rate to fall to below 7%, but this may not happen until much later in the North East.”

The report also notes that spending on housing and utility bills has seen a strong increase and now account for around a quarter of total household spending, up from just 20% before the financial crisis. And this could rise to around 30% by 2030 as a result of rising utility prices and the housing market picking up.

In the longer term, the PwC report projects average real consumer spending growth of around 2% per annum to 2030, significantly lower than the average growth rate of 2.7% in the 20 years to 2012.

Bill MacLeod, incoming senior partner, PwC Newcastle said: “The report shows that there have been some noticeable changes in the pattern of UK consumer spending, which is projected to grow by around 2% in 2013 and around 2.3% in 2014. And we do not expect positive real earnings growth to resume until 2015 and even then only at a modest pace.

“Total household incomes will be supported by continued employment growth and increases in non-employment income, notably pensioner benefits. But upward pressure on energy and food prices could act as a restraint on growth, as could an eventual rise in interest rates later this decade.

“Consumers are likely to remain highly price-conscious as online retailers and high street discount stores continue to take an increasing share of the market even after the economy recovers.”

This was posted in Bdaily's Members' News section by PricewaterhouseCoopers .