Growing economy shows Britain is on the right track, ministers say

Coalition ministers say growth figures showing economy grew by 1.9 per cent in 2013 mean that the Government's economic plan is working

New figures showing that the economy is growing at the fastest rate since the financial crisis prove Britain is on the right course, coalition ministers have declared.

George Osborne said the numbers were a “boost for the economic security of hardworking people” with manufacturing growing fastest of all.

“It is more evidence that our long term economic plan is working," the Chancellor added.

Nick Clegg said the economy is moving in the “right direction” with unemployment down and growth up. However the deputy Prime Minister also warned that future growth must be achieved “fairly” with investment in jobs outside London.

Official figures released today show the economy grew by 0.7 per cent in the last quarter of 2013. Growth last year was 1.9 per cent in all, the biggest annual expansion since 2007, when the financial crisis began.

The UK economy is still smaller than it was when the crisis struck – and many households are poorer. But figures suggest that consumers and businesses alike are increasingly confident about the future.

Danny Alexander, the Chief Secretary to the Treasury, said the figures were further evidence that “the recovery is becoming established” with 2013 becoming the first year since 2007 to see economic growth in all four quarters.

However Ed Balls, the shadow chancellor, said that the growth figures are welcome and "long overdue" but warned that the recovery is not "built to last" as business investment is "weak" and construction output down.

Announcing the figures last night Vince Cable, the Business Secretary said the figures represented a “real recovery” with business leaders speaking of a "real upsurge.”

However, he also warned that there were significant risks to a sustained recovery, particularly the housing market.

In a speech to the Royal Economics Society at the Bank of England Mr Cable said: “There has been a positive change in economic sentiment over the last six months or so. A real recovery is taking place,” Mr Cable said on Monday night.

He added: “Despite a fall in real earnings, consumers have had the confidence to start spending again – dipping into their savings held for a rainy day and making use of rising house prices, at least in London and the South East, to borrow more easily,” he said. Improved jobs prospects have also “probably” helped boost the economy.

Joe Grice, chief economist at the Office for National Statistics said: ““We have now seen four successive quarters of significant growth and the economy does seem to be improving more consistently.

“Today's estimate suggests over four fifths of the fall in GDP during the recession has been recovered, although it still remains 1.3 per cent below the pre-recession peak.”

The CBI, Britain’s biggest business lobby, also said that more British companies are seeing their sales grow than at any time since the crisis began.

“A picture is unfolding of a real upsurge in output across much of the UK economy,” said Katja Hall, the CBI’s chief policy director.

“Many firms in many sectors are feeling brighter about their prospects than they have for a long time, showing the recovery is gaining traction. While some risks remain, we expect the economy to continue to strengthen through 2014.”

John Longworth, the director general of the British Chambers of Commerce said that businesses across Britain are growing more "bullish" about their prospects.

He said: "Many companies are accelerating their pace for the first time in years, with others saying they're set to do the same. Our surveys now consistently show business confidence levels not seen for decades."

The figures from the Office for National Statistics and the CBI data are the latest signs that the UK economy is on the rebound.

Last week, the International Monetary Fund upgraded its forecast for UK growth by the biggest margin of any economy. It now expects the UK to grow by 2.4pc in 2014, in line with the Office for Budget Responsibility, the Government’s fiscal watchdog.

Conservative and Liberal Democrat ministers alike are keen to take credit for the recovery, claiming it vindicates Coalition economic policies.

However, there are still fears that the recovery will not last because it is too heavily reliant on consumer spending and rising house prices, while business investment remains subdued.

“Despite these encouraging signs, the shape of the recovery so far has not been all we might have hoped for,” Mr Cable said.

Echoing Sir Winston Churchill in 1942, he suggested that the UK economy is now at “the end of the beginning rather than the beginning of the end.”

The ONS figures show that output in the service sector – which makes up more than three quarters of GDP – rose by 0.8 per cent in the fourth quarter, maintaining its pace from the previous months.

But industrial output growth slowed to 0.7 percent from 0.8 per cent and construction – which accounts for less than 8 percent of GDP – fell by 0.3 per cent.

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UK economy grows at fastest rate in six years in 2013

Britain's economy in 2013 recorded its fastest annual growth since the financial crisis despite a slight slowdown in the last three months of the year, official data showed on Tuesday.

Supporting expectations for a bright 2014, Britain's gross domestic product rose by 0.7 percent in the fourth quarter, the Office for National Statistics said - in line with economists' forecasts for a small reduction from the third quarter's pace.

This rapid rate of growth - which is above Britain's long-run trend - is likely to increase speculation about when the Bank of England will raise record-low interest rates.

BoE Governor Mark Carney has said there is no need for rates to rise anytime soon, as Britain's total output is still well below pre-crisis levels. But unemployment has fallen far faster than the bank forecast in August, raising questions about what long-term inflation pressures might be building in the economy.

Tuesday's quarterly GDP figure took Britain's full-year growth for 2013 up to 1.9 percent from just 0.3 percent the year before. This is the highest since 2007, although total output is still 1.3 percent below the pre-financial crisis peak reached in the first three months of 2008 - a weaker situation than in almost all other big advanced economies.

A long list of economic indicators over the last few months have suggested Britain's economy is recovering faster than either policymakers or independent forecasters predicted.

Data from the Confederation of British Industry released earlier on Tuesday suggest 2013's strong growth had continued into January.

Figures last week showed British unemployment plunged to within a whisker of the Bank of England's level for considering an increase in interest rates, but the central bank stressed it would be in no rush to act.

Tuesday's figures will also be a boon for Britain's coalition government.

With growing evidence the recovery is gaining strength, opinion polls for the 2015 election suggest the Conservative-led government still lags behind the Labour opposition, which says Britons have been hurt by the rising cost of living.

Output in Britain's service sector - which makes up more than three quarters of GDP - rose by 0.8 percent in the fourth quarter, maintaining its pace from the previous months, which was the fastest in a year.

But industrial output growth slowed to 0.7 percent from 0.8 percent, as the strongest manufacturing growth since the third quarter of 2010 proved insufficient to offset falling North Sea oil and gas output.

Construction - which accounts for less than 8 percent of GDP - fell by 0.3 percent, reflecting a weak November.

A survey on Monday showed British households have a growing sense of job security and declining fears that inflation is driving prices higher.

So far, the recovery has been fuelled by consumer spending and an upturn in the housing market, although BoE policymakers over the last week have said they expect business investment to begin making a contribution later in the year.

Critics of the government's economic policies say its attempts to revive the housing market will not help bring about the long-hoped for rebalancing of Britain's economy towards more manufacturing and exports.

The ONS's preliminary estimates of GDP are among the first in the European Union, and are based partly on estimated data. On average, they are revised by 0.1-0.2 percentage points up or down by the time a third estimate is published two months later.

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Royal Bank of Scotland set to report up to £8bn losses for 2013

Unscheduled trading statement to reveal bank, 81% owned by taxpayer, hit by extra £2.9bn over conduct and mis-selling issues

Royal Bank of Scotland is facing a row over its pay policies after a fresh hit for legal bills and mis-selling scandals put the bailed-out bank on track to report up to £8bn in losses for 2013.

Even though its nine-strong top management team said they would waive any bonuses, given the scale of the losses, the bank gave the strongest indication yet it would sidestep the EU bonus cap by asking shareholders' permission to pay bonuses worth 200% of salaries – double the size of the restriction imposed by Brussels.

Chairman Sir Philip Hampton insisted RBS had to keep paying competitively. He spoke at a hastily convened conference call caused byan unscheduled trading statement in which the 81% taxpayer-owned bank revealed it would incur an extra £3bn of losses for conduct-related matters over the US sub-prime mortgage crisis and mis-selling o fpayment protection insurance and interest rate swaps.

The additional costs come on top of £4.5bn losses from the creation of a mini-bad bank inside RBS and, according to estimates, could drive the bank to losses of around £8bn by the time it reports full-year results at the end of next month.

If the loss is on that scale it would mean RBS has incurred more than £40bn of losses since its 2008 bailout – almost as much as the £45bn taxpayers pumped in to rescue it.

The move appears to push back any prospect of chancellor George Osborne selling off any of the taxpayers' stake, even as he prepares to press ahead with the sale of Lloyds Banking Group as soon as next month.

The extra £3bn includes £1.9bn for various claims and past conduct issues facing the bank – most likely the potential cost of a settlement over sub-prime mortgages in the US – plus £465m for PPI mis-selling, another £500m for interest rate swap mis-selling, and another unspecified £200m. The latest costs bring the total PPI bill to £3.1bn and swaps mis-selling to £1.3bn.

Ross McEwan, who took over as RBS chief executive on 1 October from Stephen Hester, had already said he would not take a bonus for 2013 and now the rest of his eight-strong executive committee will also forgo their multimillion-pound payments.

The New Zealander, promoted from running the retail bank after Hester's sudden departure, said the scale of the costs incurred from past mistakes had not been expected at the time of the bailout.

"This is about leadership. I know this team is not responsible for the past mistakes but we are the leaders running the company now and have to show we take accountability seriously," he said, in reference to the move to block bonuses for the top management team.

But the bank may face hurdles in its plans – still being finalised – over pay in light of the EU bonus cap that comes into effect for bonuses paid this time next year. The cap restricts bonuses for the most senior staff to 100% of salary, but can be lifted to 200% of salary if shareholders approve.

Hampton said: "We obviously need to be sensitive to our shareholding structure and the political and media issues around that, but the ability to pay competitively we think is fundamental to the prospect of getting to where we need to be."

Labour has already called on Osborne to use the state shareholding to stop such a request if it is made and UK Financial Investments, which looks after the taxpayer stake, is thought to be considering abstaining if it is put to the annual meeting in May.

Lord Oakeshott, the Liberal Democrats' former Treasury spokesman in the Lords, called any such bonus proposals "preposterous" and called on the government to nationalise the Edinburgh-based bank.

"Taxpayers are having to sign a never ending stream of blank cheques to cover disastrous long-term management at RBS while the bank's still failing to lend," Oakeshott said.

Andrew Tyrie, chairman of the Treasury select committee, stressed the need for the bank to lend to small business customers. "RBS is still paying a heavy price for past misconduct. So too are its customers and taxpayers. It is crucial for the recovery that lending, particularly to SMEs, is not constrained as a result," Tyrie said.

Payments of as much as £5.6m promised to Hester will not be affected.

McEwan said the losses related to a period at the time of its bailout when RBS was the biggest bank in the world. "The scale of the bad decisions during that period means that some problems are still just emerging. The good news is we are now a much stronger bank and can manage these costs while still supporting our customers," he said.

The unexpected statement came at 4pm following a board meeting and 30 minutes before the market closed, leaving the shares closed 2% lower at 332p – representing a £15bn loss on the taxpayers' stake.

Nathan Bostock, who has quit as finance director to join Santander, said there would be a "substantial loss" but would not be precise.

The announcement was made to coincide with a deadline by US regulators to file the results of one of its US arms.

Standard & Poor's said the bank's credit rating was unaffected but the key capital ratio will be among the lowest of its peers.

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