The sun emerged from behind the clouds this week to shine alongside some brighter economic data and a few more upbeat reports from Britain’s corporate sector. Recovery Watch basked in the glow.
Britain’s services sector bounced back from its snow-laden slowdown in January to show the fastest expansion in two years and raising hopes that the growth seen at the end of last year is building momentum.
An important survey for the manufacturing sector showed output continuing to expand at the strong rate seen in January – a 15-year high – and signalled that manufacturers were starting to see the benefits of a weak pound with a record one-month jump in export orders.
But it contained a few worrying notes: input costs – what manufacturers pay for raw materials – are rising fast. DS Smith, the packaging and office products company, could be this week’s poster child for that trend. What it has to pay for waste paper – influenced by the weak pound – has been rising sharply, so in turn it has had to raise the price of corrugated materials. That illustrates why Britain’s inflation remains so high.
The weak pound has offsetting benefits, however, as the head of Komatsu, the Japanese industrial group, mused this week– he expects demand for its goods, produced in the hard-pressed north-east of England, to pick up strongly.
Bank lending data were decidedly mixed – lending to private non-financial companies fell again in January and mortgage loans for house purchases dropped by 17 per cent.
But the good news on bank lending came from broad money growth which, for all its obscurity, is closely watched by the Bank of England’s monetary policy committee as a gauge of the success of its stimulus efforts. This showed the best reading since the Bank began publishing the data regularly last August. A few rays of light came from the recruitment sector, too: despite gut-wrenching drops in profits, two companies, Robert Walters and Michael Page, reported signs of rising demand.
But readers should be reminded that “improvement” is a relative term – often it just means “better than dire”.
Consumers are showing themselves to be relentlessly cost-conscious. Supermarket sales growth hit its slowest level in two years as discounts and coupon offers ate into the cash take at the till.
All told, Recovery Watch believes the process of economic repair is a bit like seasons changing; there are signs we are moving from a harsh winter erratically, but inexorably, towards spring.
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