Britain leads economic recovery in Europe

Britain is leading the economic recovery in Europe, amid looser funding conditions and a flurry of private investment that has boosted confidence.

Almost two thirds of respondents to the Association of Chartered Certified Accountants (ACCA) quarterly economic survey said they believed that the economy had improved in the three months to September 30, up from 42 per cent in the second quarter.

Improvements in the eurozone had created a turning point for UK business in the past year, according to the ACCA, especially in the financial sector, where lenders are heavily exposed to European banks.

“Ever since European Central Bank president Mario Draghi’s ‘Whatever it takes moment’, there’s been a significant difference to the readings we get in both western and eastern Europe,” said Manos Schizas, a senior economic analyst at the ACCA.

“The fact that the eurozone crisis now feels quite contained puts a lot less pressure on UK banks than there previously was.”

The ACCA also said respondents had reported a “dramatic improvement in access to growth capital” over the past six months, as well as greater access to funding due to the Government’s flagship Funding for Lending scheme, which encourages banks to lend in return for cheap credit.

The UK, which has outperformed Germany for the past nine months, had also benefited from a glut of investment from overseas investors who, fearful of a correction arising from the tapering of America’s $85bn-a-month bond buying programme, had pulled their money out of emerging markets and put it into perceived safe havens such as the UK property market.

“Investors are pulling money out of anything risky and opaque, so a lot of money that would have been put into EM is being repatriated to the West where it ends up in things like real estate,” said Mr Schizas.

The survey of more than 2,000 respondents also found that more businesses approved of Chancellor George Osborne’s economic policies, with only 10pc of respondents believing the government was cutting too far and too fast.

However, the ACCA also found that business investment still lagged behind access to capital, mainly because of a lack of viable projects, or a shortage of employees with the correct skills.

“You would expect that if businesses were sitting on excess capacity they would jump at every opportunity out there, but the UK suffered a loss of capacity which created a mismatch between in house skills and in house capital that might have enabled businesses to grab onto opportunities.”

Mr Schizas also said that downside risks to the UK economy remained “substantial”

“The recovery we’ve seen in the UK is increasingly dependent on no more bad news coming out of Europe, which can’t really be guaranteed,” he said. “It really doesn’t have much of an upside left, and it depends on monetary policy which is guaranteed to be rolled back at some point.”