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2012 Q1 GDP: where are we now?

Felicity Burch April 24, 2012 09:30

 

Ahead of tomorrow's GDP release for the first quarter of 2012, what do the most recent economic indicators suggest about the state of the UK Economy?

 

↑ Manufacturing PMI

At the end of 2011 the Markit/CIPS Manufacturing PMI had moved firmly below 50, signalling a contraction in the sector. However, since the turn of the year, the indicator has been in positive territory, recording its highest reading for ten months in March.
   
↔ Manufacturing output Manufacturing output has had a weaker start to 2012 than some of the business surveys might have suggested, and ONS data showed that it contracted in February this year. However, on a three-monthly basis output rose by a modest 0.2%.
   
↑ Service sector Markit/CIPS Services PMI has been firmly positive since the start of 2012, with the most recent survey suggesting growth in the sector was the strongest since the second quarter of 2010.
   
↓ Construction sector ONS reported two large monthly falls in construction output in December and January pointing to a sharp fall in output in the first quarter, despite relatively positive survey responses. 
   
↑ UK Trade Although ONS trade data weakened slightly in February, there was an improvement in the 3-monthly data, following record-high exports to non-EU economies at the end of 2011.
   
↔ Consumer confidence Consumer confidence has had a shaky start to the year. GfK NOP’s Consumer Confidence Index ended 2011 at -31 and, after improving slightly, has returned back to -31. This is a level generally associated with recession and suggests there is some way to go before household spending returns to form.
   
↑ Retail sales After a weak February, ONS data showed that sales bounced back in March. Although the increase was partly a result of people buying fuel stores ahead of the threatened petrol strikes, it was in line with the latest BRC-KPMG Retail Sales Monitor which also suggested that retail sales strengthened in March.
   
↓ Credit conditions The Bank of England’s Agents found that a sizeable minority of firms had seen a rise in the cost of finance. In the more recent Trends in Lending release, the Bank reported that net lending to businesses contracted £4bn in February, while consumer credit remained subdued. In addition, the Bank’s latest Credit Conditions Survey showed that availability of credit to households was expected to tighten.
   
↔ Forecasts Forecasts for growth in 2012 have remained relatively down-beat. The Treasury’s Comparison of Independent Forecasts in April showed a range between a contraction of 0.5% and growth of 1.5% over the year. The median forecast currently stands at 0.6%. Although forecasts have improved modestly since January when they fell within a range of -1.3% and 1.7%, with a median forecast of 0.4%, in either case the median forecast would not rule out a contraction in the first quarter of this year.
   
So what does all this mean for tomorrow’s GDP release
 
Tomorrow’s release – be it positive or negative – is likely to confirm one thing: this recovery is patchy and unsteady.  The Bank of England’s recent minutes note that the arithmetic affects of a sharp contraction in construction at the beginning of the year will knock the GDP figure down. This may well mean that UK output fell in the first quarter of 2012, pushing the economy back into technical recession. But as recent data reveal, the overall picture is much more mixed.  
 

 

 

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