By Daniel Hunter
Cebr's forecast for Q1 2013 GDP growth is a paltry 0.1%. This means that there is about a 40% chance that the statistics will show negative growth, meaning that unless there are major revisions to the history, the UK will have entered a triple dip recession.
But even if the figures show this, they will be giving a misleading signal. We believe that the economy is now recovering, though slowly, although when the statisticians catch up with the new businesses that are currently being created, especially in the internet and media sectors, growth might even get revised up above 1% for 2013 as a whole.
The data for Q1 will have been negatively affected by the weather. The retail sector was particularly affected in March, where spending on Spring clothes and gardening which traditionally rises at this time of year was delayed by the continuation of the winter. Much of this spending will come back during the second quarter.
All the business surveys indicate an upward trend in economic activity. The BDO poll of polls optimism index, which combines the effects of the key surveys (and is calculated by Cebr) rose from 88.9 in January to 90.6 in February and to 92.2 in March.
The ICAEW/Grant Thornton Business Confidence Monitor for Q1 showed a rise in the Confidence Index from a 4.2 in Q4 2012 to a 12.8. These surveys, even when they are out of line with the government statistics for a particular quarter, normally give an accurate picture of the underlying trends in the economy.
We believe that the government is slowing down the pace of reduction in borrowing. The last financial year's data was affected by accounting changes so provides little indication of the trend. But looking out over the coming two years and plugging in realistic growth forecasts, we see borrowing edging down very slowly. So austerity - despite the rhetoric - is being watered down. We see the deficit remaining close to its current levels on a consistent accounting basis over the next two years.
And we have consistently argued that the Funding for Lending Scheme, now combined with additional incentives for house purchase from the Budget, will boost the housing market - initially by raising house prices but eventually by raising housing investment. Rising house prices will create a feel good factor that will boost the economy, although the impact now is likely to be less than it might have been before the financial crash. Our latest forecasts show small year on year rises in both house prices and housing transactions this year and an acceleration next year as Help to Buy kicks in fully. And additional monetary measures are likely in the coming months.
There are still some negatives and some risks. The ASDA Household Income Tracker (also calculated by Cebr) turned down in March as very sluggish growth in wages is more than eroded by continuing high inflation - though the fall in commodity prices in the past 6 weeks will help household incomes. More of a problem is that the parts of the international economy most directly relevant to the UK are weak.
We still see negative growth in the Eurozone this year and although there is growth in other parts of the world economy including the US (where Q1 GDP growth will be released on Friday, probably showing an annualised figure close to 3%), the UK's market share in these economies is much less than in Europe. And the euro crisis still has the potential to blow up, while political and economic uncertainty in the Middle East is growing.
On balance, though we believe that the UK economy has started to grow again and that the pace will accelerate for the rest of this year.
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