Fears ease over double-dip recession

Fears that the UK is in for a double-dip recession receded somewhat on Wednesday, amid stronger data from key sectors of the economy.

With a better-than-expected performance from the service sector and the manufacturing and construction surveys holding onto their recent gains, a weighted average of all three suggests quarterly GDP growth of 1%.
Economists say the improvement also makes it less likely that the Bank will announce more plans for quantitative easing in the interest-rate decision due tomorrow.
Today's surprise service sector figures showed a sharp pick-up in activity levels in February to hit a three-year high.
The Markit service sector purchasing managers survey (PMI) reported business activity in February growing at its fastest rate since January 2007 from a balance of 54.5 to 58.4.
Although this was bolstered by some weather related lost business from January feeding through, it more than offsets the dip reported in January, which had sparked fears of a double-dip recession.
Vicky Redwood, UK economist at Capital Economics, says: "On the face of it, the index points to quarterly growth in services output of about 1%, a big improvement on the fourth quarter's 0.5% gain. At the very least the survey will ease concerns that the economy may have fallen back into recession this quarter."
Notes of caution nevertheless hang in the air.
Azad Zangana, economist at Schroders, says: "The stronger data reduces the probability of a double-dip recession though we remain cautious over growth prospects for 2010.
"The details of the survey show that even though business activity is picking up in response to increased consumer confidence, firms are continuing to shed staff. Shaky labour markets and the prospects of fiscal tightening over the next few years are likely to weigh down on consumer activity."
However, other surveys are also suggesting the UK has moved further along the road to recovery.
This morning's Nationwide Consumer Confidence survey showed consumer confidence hit a two-year high in February, while the latest Confederation of British Industry distributive trade survey also showed a strong improvement following a dip in January.
The manufacturing purchasing managers' index soared to a 15-month high in February, raising hopes that the sector is in for a decent first quarter.
Economists say manufacturers are currently reaping the benefits of leaner stock levels, improved competitiveness in both domestic and foreign markets stemming from the weak pound, and firmer demand in key overseas markets. There are also signs that domestic demand is picking up.
However, concerns remain over the strength of demand for goods in the medium term, especially with the eurozone's recovery significantly slowing and stimulus measures being removed.
Howard Archer, chief UK and European economist at IHS Global Insight, says: "Even allowing for the fact that manufacturing output only accounts for some 13% of total GDP, this boosts hopes that the economy can keep on growing in the first quarter of 2010 after exiting recession in the fourth quarter of 2009."
Leigh Harrison, head of UK equities at Threadneedle, adds: "The UK economy is in recovery mode but the pace of the recovery is likely to slow over the next few quarters as deleveraging curbs demand. The political backdrop is unhelpful, with a general election looming and the next government facing the challenge of addressing the UK's debt burden without derailing growth."

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