February has brought a flurry of something as unfamiliar as it is unexpected: good news about Britain’s economy.
Two months ago, the Financial Times’ annual survey of 83 economists – 11 of them former members of the Bank of England’s Monetary Policy Committee – found three times more respondents thought the economic outlook would deteriorate than thought it would improve in 2012.
Yet unofficial surveys and official data this month suggest manufacturing output is growing, services companies are busier, inflation is coming down and retail sales are going up. Salesdesk employees at one investment bank have been shooting off internal messages asking if a “mini-boom” is now under way in Britain.
David Tinsley, an economist at BNP Paribas, does not see a boom, but he has increased his economic growth forecast for the year. “We should take these things quite seriously,” he says. “There are things that could derail it quite easily, but if they don’t, then I think the outlook ought to be for growth at least as good as last year.”
However, he is in a minority in changing his overall view. The average estimate among City economists remains for the economy to grow by a measly 0.3 per cent this year after growth of about 0.9 per cent last year.
Certainly, the factors weighing on the economy have not gone away: fiscal austerity, squeezed real incomes, a sclerotic banking system and turmoil in the country’s biggest trading partner. Retailers, probably the companies most in tune with consumer sentiment, remain miserable in spite of a 0.9 per cent lift in retail sales last month. Peter Marks, chief executive of the Co-operative group, the UK’s fifth-biggest supermarket chain, says: “I think 2012 is going to be more difficult than 2011, especially the first half . . . It still feels like a recession to the man on the Clapham omnibus.”
So what might explain the recent better economic data? According to the CBI, the country’s biggest business lobbying organisation, the mood among its non-consumer-facing members has improved this year. The eurozone’s travails no longer seem poised to trigger another financial crisis, thanks to the European Central Bank’s decision to flood the banks with cheap loans, and the US economy looks more robust. The FTSE 100 is about 15 per cent higher than its recent trough in late November.
But unless better business confidence translates into decisions to start hiring and investing, the recent lift to activity could prove transitory. “I think the signs are that the economy’s roughly flat – slightly down in the fourth quarter [of 2011], slightly up in the first quarter [of 2012]. I wouldn’t get too excited about either of them,” Michael Saunders, an economist at Citi, says.
Sir Mervyn King, the governor of the Bank of England, also predicts a “zig-zag pattern of alternating positive and negative quarterly growth rates” this year, partly because the Queen’s jubilee bank holiday will distort the data. Nonetheless, the Bank’s current round of asset purchases to stimulate the economy will probably be the last, it signalled this week.
Many economists do in fact expect a more sustained upturn in economic growth, but not until later in the year. So long as annual inflation continues to descend from its September peak of 5.2 per cent, people who keep their jobs should start to see their real incomes creep up again. But this will take time, and inflation’s fall could be stymied by any number of factors in the meantime.
“I think patience is a quality I would urge on all of us,” Sir Mervyn told a press conference this week.
“We can’t expect to get through this quickly.”
Additional reporting by Andrew Bounds
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