25th January 2012

GDP Announcement

The economy has taken a step closer to recession: official figures show that it contracted by 0.2% between Oct & Dec, more than expected.

While these figures reveal significant weakness in the economy, we do not think they mark the start of an inexorable slide into a severe recession. There are two important aspects to the news in Q4 GDP. First, the weakness came mainly from industrial production and construction output, which are very volatile, and we might expect to see some of this weakness unwound in Q1. Second, survey indicators suggest that the latest spell of weakness in the economy has troughed and we should expect growth to slowly improve from here. In fact the PMI surveys showed activity bottomed in October and has gradually improved since. Furthermore, this week we saw some encouraging signs from the euro area, with flash PMIs showing activity stabilised in January in both the manufacturing and services sectors.

While a technical recession cannot be ruled out, the signs are that the economy is turning the corner slowly and there is little evidence to support predictions of a deep recession. In fact, we forecast the economy to grow marginally by 0.1% quarter-on-quarter in Q1 and to continue to improve thereafter. Nevertheless, with the euro crisis grinding on, the near-term economic outlook remains precarious.

Read the full story here:
http://www.guardian.co.uk/business/2012/jan/25/uk-gdp-what-economists-say?newsfeed=true

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