Britain is on track to grow faster than any other leading nation this year, but is the recovery reaching us all? asks Business Editor Andy Richardson.

ARE you feeling the benefit of the recovery?

Compared with its rivals the UK economy is “leading the pack” according to chancellor George Osborne.

In terms of growth that is certainly true, but on other key measures the picture is less easy on the eye.

When the Coalition came to power it pledged to restore Britain’s economic credibility and protect its AAA credit rating. To achieve this Mr Osborne embarked on an austerity programme that hit the North-East particularly hard. The chancellor insisted that jobs and services would have to suffer if we had any chance to put public finances in order. With the General Election only seven months away, however, the deficit remains stubbornly high.

Government borrowing in the first six months of the 2014-15 fiscal year has been higher than expected – partly as weak wage growth has limited income tax receipts – and economists believe Mr Osborne is on course to miss his deficit-reduction target this year.

And the prized AAA rating has taken a battering, with two of the three main agencies stripping the UK of its top-tier status.

In Mr Osborne’s favour are the latest GDP figures, showing 0.7 per cent growth. They were down on the previous quarter but the UK still looks set to be the fastest-growing advanced economy this year - better than France and Germany.

The services sector continues to be the star performer of all industries, but there are encouraging signs in construction and manufacturing, with the latter on track to grow at its fastest pace since 2010.

In addition, anecdotal evidence suggests there are increasing murmurs of optimism from employers across our region.

Mike Matthews, managing director of plastic car parts maker Nifco UK, near Stockton, said: “We have seen phenomenal growth and there is a real sense of confidence within the company. We have almost doubled our workforce in the last few years.”

Sage’s Business Index survey found 52 per cent of North-East businesses expect their turnover to grow in the next 12 months, and 35 per cent expect to increase the number people they employ.

“As businesses big and small create jobs and drive forward the recovery, it is evident the region is in a buoyant mood,” said Brendan Flattery, chief executive of Newcastle-based business software and services provider Sage UK.

James Ramsbotham, chief executive at the North East Chamber of Commerce, went even further, and claimed the region was playing a leading role in the national upturn.

He said: “It is North-East business that is driving forward the economy and it is North-East business that is creating the job opportunities that have resulted in more people in employment in our region than ever before. We continue to set the pace in exports and have seen growth in some areas of the region outstripping even the South- East.

“Over the last 18 months to a year, NECC’s Quarterly Economic Surveys have recorded record breaking levels of optimism, record breaking levels of sales and orders among manufacturers and huge leaps in plant and workforce investment. “Our firms continue to lead the way to recovery and they must be empowered by the Government to do even more.

“There is a good story to tell in the North-East and we must become better at expressing it outside of our region. We’re not the basket case that some would have you believe, we are an unrealised asset that, while punching well above its weight, could deliver so much more for UK PLC.”

County Durham’s Dyer and DPE Automotive were among several engineers and manufacturers that this month announced investment and expansion plans that will create jobs.

Even so the production sector of the economy, which includes manufacturing, is still 9.6 per cent smaller than it was before the Great Recession, and it remains fragile.

In the last month alone we have seen more than 200 jobs lost or expected to go at KP Snacks in Consett and Tag Energy Solutions on Teesside, as well as continued uncertainty about the long term future of the North-East’s steel industry.

This would suggest that talk of an out-and-out recovery would be grossly misleading – particularly in this region which continues to suffer a stubbornly high rate of unemployment and low pay.

Almost 10 per cent of north-easterners are out of work. Our region continues to top the tables for the number of jobless and for people claiming jobseeker’s allowance – at rates that are almost double the national average.

Try telling people who are struggling to find a job that the recovery is in full swing.

Frances O’Grady, TUC general secretary, believes it is a tale of two economies where a few people at the top are thriving, but most workers’ wages are still in decline.

She added: “This kind of growth is fragile because businesses can’t keep prospering if their customers have less money to spend.

“George Osborne needs a clear strategy for a wages-led recovery or it will be the deficit that continues to grow while the economy runs out of steam.”

The sentiment that the recovery is not reaching hard working people was echoed by Ed Balls, Labour’s shadow chancellor, when he said: “For all George Osborne’s claims that the economy is fixed most people are still not feeling the recovery. Working people are over £1,600 a year worse off since 2010 and these figures now show a concerning slowdown in economic growth too.

“We need a strong and balanced recovery that works for all working people, not just a few at the top. But under the Tories we have stagnating wages and too many people in low-paid jobs which, as the OBR said last week, are leading to rising borrowing. This plan isn’t working for working people.

“And under this government house building is it at its lowest level since the 1920s, business investment is lagging behind our competitors and exports are way off target.”

Away from the political point scoring, John Hawksworth, PwC’s chief economist, noted that total GDP might be about 3.4 per cent higher than its pre-recession peak at the start of 2008, but the population has also grown by 4.5 per cent over this period.

Average GDP per person is therefore still about one per cent lower in real terms than before the recession, which helps to explain why many people may feel that there is some way to go before the downturn is truly over.

Mr Hawksworth also reckons that growth will slow next year, to around 2.5 per cent compared to 3 per cent or so in 2014.

Mr Osborne warned the country faces a "critical moment" amid a darkening picture for the global economy.

In the meantime,

John Allan, Federation of Small Businesses chairman, wants practical actgion to keep the recovery on track. He said: “It is clear that steady progress will only continue if government does everything it can to create an environment that small businesses can thrive in. It needs to focus on enabling more small firms to export and press ahead with banking reforms so businesses can get the finance they need.

"That that’s what is required for firms to grow and boost the UK economy further.”

PANEL: What is GDP?

GDP is considered to be the most accurate indicator of economic activity in the short term.

It involves surveying tens of thousands of firms and public sector departments, and breaks down how much the services and manufacturing sector contribute to our growth. It is described by the Office for National Statistics (ONS), as "the sum total of the final output an economy produces.” It is measured in three ways: output, which is the value of the goods and services produced by all sectors of the economy, expenditure, and income, which measures earnings, mostly through our wages.

Information on sales is collected from 6,000 companies in manufacturing, 25,000 service sector firms, 5,000 retailers and 10,000 companies in the construction sector.

Data is also collected from government departments covering activities such as agriculture, energy, health and education.