Economic Update
HSBC Economic Update (Nov 09) |
| The locker is bare Surveys of business activity and sentiment have shown sufficient improvement during the past few months for most analysts to believe that the UK had emerged from recession. In particular, the PMI (Purchasing Managers’ Index) survey of the services sector suggested that activity had started to expand again back in May. Indeed, the surveys conveyed an impression that the UK had been improving more quickly than other advanced economies. It therefore came as a nasty shock when on 23rd October the Office for National Statistics (ONS) released its first estimate of GDP for the third quarter. Rather than the modest growth that most pundits had expected, the ONS reckoned that the British economy had contracted by a further 0.4%. This meant that the economy had shrunk for six consecutive quarters, the longest run of straight declines since quarterly figures have been produced, during which time output had fallen by a whisker short of 6%. Towards the end of October, meanwhile, it was announced that the US economy had leapt clear of recession, posting robust growth of 0.9% in the third quarter. Of the other G7 economies, Japan, France, and Germany had already returned to expansion in the second quarter, with no indication that they have since slipped back into negative territory. So if Canada and Italy both achieved a modicum of growth in the months from June to September, as seems more likely than not, then Britain would find itself trailing last in the G7 growth stakes. It’s possible that the ONS has got it wrong. It wouldn’t be the first time. Putting together the national accounts is a tortuous process, one that takes several years and regularly produces major revisions. And, fortunately, there are grounds to expect that the fourth quarter will produce better results. Surveys of business activity and consumer sentiment have continued to improve, with October’s PMI reading for the services sector being back where it was before Northern Rock failed. Meanwhile, August’s fall of around 2% in manufacturing output has been largely reversed. The car scrappage scheme has succeeded in bringing the motor trade out of its deep recession, with new car registrations in October being 31% up on last year. Finally, the CBI’s monthly survey of the distributive trades, undertaken in early October, found conditions for retailers at their best since December 2007. For members of the Monetary Policy Committee, the news that Britain was still in recession brought a severe policy-making headache. They were probably hoping to announce an end to the programme of quantitative easing (QE) at their meeting on 5th November. Instead, the only debate was about whether to extend the programme by £25 billion, or £50 billion. In the end, they opted for the former, which will take the total injection to £200 billion. To download the full report, please click here |
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