Have a look at the following article found in the Wall Street Journal, written by Alex Brittain – appropriate name!
The points made are that in January the economy recovered slightly compensating for the drop in the last 1/4 due largely to the weather. Unofficially it would seem the growth is sustained in Feb and perhaps March – but with retailers like Dixons issuing profit warnings – it is clear that the recovery is not robust or assured yet.
See the article here….
The U.K. began 2011 with a bounce following its unexpected contraction in the last three months of 2010, official data confirmed Wednesday.
But a profit warning from the country’s biggest electronics retailer, Dixons Retail PLC, the same day showed how fragile the U.K. economy remains, underscoring the fact that one strong month doesn’t guarantee a longer-term recovery.
The Office for National Statistics said the services sector, which makes up three-quarters of U.K. output, surged ahead in January. That strong performance, added to growth figures from the manufacturing sector in January, indicate the economy as a whole returned to growth at the beginning of the first quarter.
Services output grew 1.3% in January from December, the fastest rate of growth since July 2002—reversing the previous month’s 1.1% fall, which was caused mainly by harsh weather conditions.
Philip Rush, an economist at Nomura, said the figures are a strong signal that U.K. gross domestic product performed well in the first quarter of 2011. “The ONS’s estimates directly incorporate these monthly [services] data, so the positivity in this release is extremely important for the first estimate of first-quarter GDP,” he said.
Mr. Rush calculates that even if services-sector output goes on to be unchanged in February and March, the result would be a contribution to quarterly GDP growth of 0.45 percentage point.
That would do much to offset weakness in the previous quarter. Economic output between October and December shrank 0.5% from the previous quarter, dented by the bad weather. Furthermore, recent surveys have suggested the economic recovery continued after January.
The purchasing managers’ index for manufacturing showed further rapid expansion in February, while the equivalent index for services showed growth, albeit marginal.
Even so, the numerous pressures bearing down on the U.K. economy mean its prospects are cloudy at best.
The Confederation of British Industry said Wednesday that a growing number of retailers reported sales in March to be weak for this time of year.
That announcement came as Dixons lowered its full-year profit forecast, blaming a sharp slowdown in consumer spending for a 11% slump in same-store sales in the U.K. and Ireland over the past 11 weeks. It cited the government’s recent rise in the sales tax to 20% from 17.5% as a major cause.
Dixons’ difficulties are unlikely to be a one-off. Consumer spending, a key pillar of U.K. economic growth, will probably be sluggish in the near term because consumers lack confidence.
Polling firm GfK NOP said Thursday that its main measure of consumer sentiment was unchanged at -28, as consumers became more upbeat about the economy but less confident about their personal finances. Another survey, by banking group Nationwide earlier this month, showed confidence at its lowest levels on record.
Consumer confidence is being suppressed by a number of factors. These include fears that unemployment will rise further, partly the result of the coalition government’s spending cuts and tax rises; the prospect that mortgage payments and borrowing rates will soon rise because of a likely increase in Bank of England interest rates, intended to slow inflation; and falling disposable income because of high inflation and low wage growth.
Employment consultancy Incomes Data Services said Thursday that pay deals in the three months to the end of February were steady at 2.5%. That is far behind the pace of retail price inflation, a measure of prices commonly used in pay negotiations, which accelerated to 5.5% in February.
Chris Williamson, chief economist at financial data company Markit, said households’ willingness to spend will be a key factor for the U.K. economy’s performance in February and March.
“Much will of course depend on whether growth can be sustained in the face of further declines in household confidence in recent months,” he said.