British economy may have returned to growth in q1

April 26, 2011 - 0:0

The UK economy is likely to have expanded in the first quarter, with strength stemming primarily from services activity that rebounded notably in the first few months of the year.

The economy is forecast to expand 0.5 percent sequentially in the first quarter, after contracting 0.5 percent in the final three months of 2010. On an annual comparison, economic growth for the first quarter is seen at 1.8 percent.
The Office for National Statistics is slated to release preliminary national accounts data at 4.30 am ET on April 27. The first estimate will be based only on the output side of the economy.
While at first glance this looks a decent performance, in actual fact it would represent a far from dynamic performance after weather-influenced contraction in the fourth quarter, said IHS Global Insight economist Howard Archer.
The first quarter growth is set to overstate the economy’s strength just as the decline in the fourth quarter overstated the weakness, he noted.
As fiscal tightening increasingly kicks in, contribution from consumer spending will moderate, resulting in weak economic performance. Archer projects 0.3 percent to 0.4 percent quarter-on-quarter growth through the second-fourth quarters of 2011, resulting in an overall estimated expansion of 1.5 percent for 2011.
The Office for Budget Responsibility forecast 1.7 percent growth this year and 2.5 percent expansion next year. The Washington-based International Monetary Fund also projects 1.7 percent growth for 2011.
In February, industrial output logged its biggest decline since August 2009. Output was down 1.2 percent. At the same time, manufacturing output remained flat.
The latest Purchasing Managers’ survey results for March showed the service sector activity rising at the fastest pace in thirteen months. At the same time, construction sector growth was underpinned by civil engineering and residential building. Meanwhile, retail sales rose unexpectedly in March suggesting better contribution to growth.
The underlying strength of the recovery will become more difficult to estimate as the Royal Wedding on April 29 is likely to increase the volatility of the economic data over the coming few months, Samuel Tombs, an economist at Capital Economics said.
The extra uncertainty created by these distortions reinforces the likelihood that the Bank of England’s Monetary Policy Committee will keep interest rates on hold for a while yet, Tombs added.
At the April meeting, policymakers concluded that it was too early to confirm whether the slowdown in growth seen at the end of the last year had been temporary or whether the weakness in the contemporary indicators of household spending heralded a more protracted weakness in consumption growth, the minutes showed. The MPC remained divided as it retained the record low interest rate and the size of asset purchases.
(Source: RTTNews)