Economy improving a little, but still pretty ghastly
The monthly Treasury round-up of independent Forecasts for the UK Economy is always worth reading and this month’s shows the independent (mainly City) economists responding to the rising business optimism of recent months. There’s an awful lot of economic indices and surveys floating around these days but two I always take seriously have suggested things are looking up. Yesterday’s Industrial Trendssurvey from the CBI found 39 per cent of manufacturers expecting output to rise in the next three months, as against 15 per cent expecting it to fall; the net balance of + 24 per cent is the highest since this time last year.
The latest Purchasing Managers Index for services was robust, with confidence in the sector the highest for a year and the PMI for manufacturing was positive, with signs of greater confidence. These results have fed through to the Treasury round-up of forecasts for GDP growth in 2012, with the first uptick for a year:
This chart shows the average of independent forecasts for 2012 GDP growth at each month on the horizontal axis. In February, after falling for 6 months, this average remained at 0.4 per cent and this month it rose to 0.5 per cent; the average for new forecasts is better than this chart shows – 0.6 per cent.
There’s three things worth saying about this. One is that this is a positive change that we’re seeing in too many separate sources for it to be a rogue result.
But the second point is that we’re still talking about expectations, rather than changes in the real world. Business confidence is a useful tool for looking forward, but we still want to see this confirmed by results for output.
And third, we’re starting from a low base, this is still a pretty ghastly picture; we’re still below the OBR’s forecast of 0.7 per cent growth this year (that’s their November forecast, due to be updated very soon). As Duncan has pointed out, we need 0.8 per cent growth just to keep up with demographic change, otherwise GDP per capita falls.
It looks as though there may be a genuine improvement under way but it’s going to be some time before we can call it satisfactory.