Osborne’s pre-Budget boost as the IMF praises UK recovery
A FLURRY of positive economic news yesterday has given George Osborne a timely boost ahead of next month’s Budget.
Lending to businesses increased at the fastest pace for more than seven years, while high-profile manufacturers including Aston Martin announced plans to ramp up production.
There was also a vote of confidence from the International Monetary Fund, which said: ‘ Considerable progress has been achieved in the post-crisis repair of the UK economy.
‘The UK economy has been growing steadily. Economic recovery has been driven by robust expansion of private domestic demand and has supported rapid job growth.’
But the IMF added: ‘ However, the relatively positive outlook is subject to risks and uncertainties.’ They include turmoil in the global economy, high levels of household debt and the EU referendum in June, it said.
Lending to British businesses crashed in the aftermath of the 2008 financial crisis. The problem – which was highlighted by the Daily Mail’s Make the Banks Lend campaign – was a serious drag on growth in the early days of the recovery.
But the latest figures suggest banks are once again confident enough to lend, while companies are optimistic enough to borrow.
Yesterday the British Bankers’ Association said lending jumped by £3.4billion in January, the largest increase since July 2008.
Howard Archer, chief UK economist at research group IHS Global Insight, said: ‘Lending to businesses was boosted by companies looking to take advantage of record low interest rates. Access to capital at low interest rates is a boost for UK growth prospects – it is helpful for efforts to foster balanced, sustainable healthy UK growth and to lift productivity.’
It came as luxury car maker Aston Martin said it would build a new factory in South Wales, creating 4,000 jobs, including 750 at the plant. The company will invest £200million in the site at St Athan in the Vale of Glamorgan to build its new DBX model. The deal will mean cars rolling off a production line in Wales for the first time in almost 50 years.
Chief executive Andy Palmer said it was a ‘momentous day for Wales’.
He added: ‘We have a wealth of craftsmanship here. It takes 200 hours to make a car and we need skilled labour and we have that in Wales, in Great Britain and that played a big part in our decision.’
Britain’s car industry is booming, with figures from the Society of Motor Manufacturers and Traders showing that production rose 8 per cent last month to 137,552 vehicles. Strong overseas demand helped exports jump 9.7 per cent.
In the aerospace sector, European giant Airbus made a U-turn yesterday on plans to cut production of its profitable A330 aircraft.
It will now build seven A330 widebody jets per month from 2017. It had planned to cut output from ten to six a month to prepare for its new A350 jetliner and an A330 upgrade.
The aircraft maker employs about 15,000 people in the UK.
IMF managing director Christine Lagarde risked the wrath of Eurosceptics by highlighting the perceived threat of quitting the EU.
The former French finance minister, who like David Cameron wants Britain to stay in, warned that Brexit would be ‘negative on all fronts’.
She said: ‘Uncertainty is bad in and of itself. No economic player likes uncertainty. They don’t invest, they don’t hire, they don’t make decisions in times of uncertainty.’
Bank of England deputy governor Jon Cunliffe said he expected the UK economy to ‘continue to grow solidly’ over the next few years. But he also suggested that the Bank could cut interest rates if the economy slowed, having frozen them at 0.5 per cent since March 2009.
‘We have a range of tools at our disposal and should be ready to use them whichever risk materialises,’ he said.
This week Governor Mark Carney said the central bank has ‘absolutely no intention’ of cutting rates into negative territory. But he added: ‘If we were in a position where the economy needed additional stimulus… we could cut interest rates towards zero.’
Comment – Page 14
‘Rapid job growth’