By Maximilian Clarke

Despite increasing speculation, reinforced by the recent quarterly GDP contraction and this morning’s report from think tank Niesr, the UK economy can still evade a return to recession.

Much of the 0.2% contraction in Q4 GDP has been attributed to a sharp drop in industry; the UK’s manufacturing sector contracted by 0.9%, bringing to an end more than a decade of solid growth, the Confederation of British Industry’s last quarterly industrial trends survey showed. But, Director General John Cridland noted, much of UK manufacturers’ confidence had been eroded by uncertainty among the UK’s chief trading partners in the EU.

And so with confidence in the eurozone this morning rebounding after the EU’s service sector reversed a four-month pattern of decline, confidence among the UK’s manufacturers will likely follow suit.

Further, recent purchasing managers index surveys from Markit/CIPS suggest the UK’s construction sector is optimistic about 2012 growth whilst growth in the dominant services sector rocketed to a 10 month high. These two factors have the added bonus of being mutually reinforcing: it was the strength of the services sector that fed continued strong growth of the commercial construction sector.

With other indicators suggesting growth, a reversal of the sudden losses in manufacturing will bolster UK economic growth, likely staving off a dreaded return to recession.

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