According to a recent report published by PricewaterhouseCoopers, the British economy is set to become the world’s fifth largest by 2020. For the time being, the UK economy is certainly on its way to recovery following a long and severe period of recession, and growth indicators are evident across a large number of industries nationwide. But how exactly is the British economy doing during 2014? In this post we take a look at some interesting figures on this matter.

Sound economic recovery is well underway

At the end of 2013, economic analysts at the British Chambers of Commerce raised the UK’s GDP forecast for 2014 to 2.2 per cent, a figure that represents a substantial improvement over the previous growth forecast of 1.9 per cent. A few months later, the Confederation of British Industry (CBI) announced that economic performance had in fact been stronger than expected during the first months of 2014. Economists working for the CBI affirmed that the British economy has been growing at its fastest levels since 2007. The new data forced market analysts to re-adjust their growth forecasts to 2.6 per cent.

Of course, such levels of growth are only possible thanks to a combination of factors. More specifically, raised growth levels can be attributed to higher than expected levels of business investment. According to experts at the CBI, a reduction in the cost of borrowing and generalised consumer confidence have spurred the number of investment opportunities. It is expected that business investment growth will reach 6.6 per cent by the end of 2014. This seems highly feasible when one considers the latest official figures, released by the Office for National Statistics in June 2014. These show that business investment levels grew by 5 per cent during the first quarter of the year, and are the highest experienced by the economy during the past two years.

During the first half of the year, the UK economy has also seen an intensification in net trade. A stronger internal market has driven in-country demand for imports, whereas the export sector has been growing steadily as a result of the current strengthening experienced in certain Eurozone countries, such as Ireland, Italy, and Spain.

According to the Confederation of British Industry’s director general, the British economy has certainly learnt a lesson from its past mistakes and is generating sound growth by avoiding “a debt-duelled or a housing bubble-led recovery”, explained Mr. John Cridland in a recent interview.

Key sectors in the UK’s 2014 economy

The UK’s manufacturing sector has performed extraordinarily well during the first half of the year. Data found in the latest Markit / CIPS survey show that this industry has been growing at its fastest pace for seven consecutive months. In fact, manufacturing output has been increasing for more than 16 months, and remains strong despite the slowdown experienced during May 2014.

Although activity in the construction sector still remains below pre-recession levels, during the first quarter of 2014 this industry expanded by 1.5 per cent. April was a particularly good month for this sector, as the construction industry as a whole grew by 1.2 per cent during that month alone. According to the Office for National Statistics, investment is mostly coming from private sources, as private housing and industrial activity are the most prosperous sub-sectors in the construction industry.

Employment and income

In May 2014, the percentage of unemployed workers fell to 6,8 per cent in line with the predictions made by the Bank of England during the previous year. This percentage is the lowest experienced by the British economy during the past five years. Youth unemployment was also down during the first quarter of the year, and is currently set at 868,000 people. There has also been a definite rise in the number of self-employed workers, as 76 per cent of newly employed people during Q1 2014 went into self-employment.

On the other hand, at just over £26,500, average household income still remains below pre-recession levels. Many newly created jobs only pay £16,640 per year, so there is plenty of room for improvement in terms of wages and productivity levels.

Challenges ahead

Despite the overall optimism spurred by the most recent economic indicators, sustained economic growth will not be possible until certain challenges are successfully dealt with. According to Sir John Cunliffe, deputy governor of the Bank of England, the most important challenges that lie ahead include the country’s ability to reduce its fiscal deficit and enforcing precautionary measures to contain debt. Housing prices have been rising faster than income, posing “the biggest risk to the UK’s economy”, said Cunliffe. In addition, during the remainder of 2014 the British executive will need to make every effort to stay within the set inflation targets and to lower interest rates.