By Michael Baxter 14 Jan 2010 [0 Comments | 512 views]
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Yesterday saw good news and bad news from the National Institute of Economic and Social Research (NIESR); mixed news from the CBI; and from the Association of British Insurers, worrisome news on how consumers are feeling.
Meanwhile, data from the ONS out yesterday threw more light on the big question, how rapidly are we moving from recession?
NIESR is widely respected. Its big problem is that it is in the business of economic forecasting, and as we all know by now, economic forecasting isn’t always that accurate. The economist Galbraith once said: “The sole benefit of economic forecasting is that it makes astrology look respectable,” and he had a point. As a general rule of thumb it would seem that economic forecasting, just like predicting the weather, is fine when things are normal. But the biggest economic crisis in half a century was not predicted, and as we all know the hurricane of 1987 was missed too. (Although apparently, it wasn’t strictly speaking a hurricane at all.) In fairness, however, the forecasters didn’t do a bad job of predicting the recent snow.
The good news from NIESR is that the UK economy probably grew in December. It estimates that the month saw the economy expand by about half a per cent on the month before, after expanding at a similar growth rate in November. NIESR also reckons that for the second successive month, quarter on quarter growth is rising too. In fact, the most recent quarterly growth rate works out at an annual equivalent of 1.2 per cent.
The bad news: NIESR reckons 2009 saw a 4.8 per cent contraction, the worst annual fall since 1921. It calculates that the UK economy saw output peak in February and April 2008, and the UK’s total GDP is currently 5.5 per cent below the peak level. NIESR produced this graph which tells the story of how long it took GDP to return to the pre recession peak in 1930-30, 1973-76, 1979-1983, 1990-93, and today.
Meanwhile, the CBI has been producing its own surveys. It asked financial services firms how their business volumes fared in the three months to December. Thirty-two per cent said that volumes rose, while 28 per cent said they fell. The resulting balance of +4 per cent is slightly lower than September’s +7 per cent, and is less than expected (+16% per cent). A balance of 13 per cent of firms expect a reduction in business volumes over the coming quarter – the most negative expectation since December 2008, when the balance was -25 per cent.
Ian McCafferty, CBI Chief Economic Adviser, said: “The bounce in UK financial services activity over the past six months is not expected to last as we enter 2010. Firms see their business volumes falling back again, with no further improvement in profitability over the next three months.
“On a more positive note, financial services firms’ confidence in the general business situation has continued to increase, profitability improved and a much slower reduction in numbers employed was seen in this survey. Job losses are also expected to be minimal in the coming quarter.”
Meanwhile, consumers are losing their optimism, or so says the Association of British Insurers. It questioned 2,500 adults, from across the length and breadth of this land, and found as follows:
Optimism over the outlook for 2010 has fallen. Nearly a third (31 per cent) expect the economy to worsen in 2010, up from 22 per cent in the third quarter. Only 39 per cent were optimistic about the economy in 2010, down from 52 per cent who felt the same in the previous quarter.
Worries over job security have increased. Thirty-one per cent said that they were more concerned about their job security than they were three months ago, up from 27 per cent in the previous quarter.
Paying off debts is taking precedence over saving. Forty-two per cent have started paying off their non-mortgage debt faster than before, up from 34 per cent a year ago. Of those saving regularly, only 17 per cent expect to be saving more in 2010, down from 24 per cent who felt the same way in the previous quarter.
There is a snag with these consumer confidence surveys. We read in the press that the economy is heading towards disaster, and so we all suffer a loss of confidence. The press then say: “Look, consumers are losing confidence, therefore we were right, the economy really is heading for disaster.”
The move towards savings is interesting, however. It does seem the average Brit now looks more kindly on the idea of saving. Saving has become fashionable, retail therapy is not quite so popular. The long-term implication of this shift could prove to be highly significant.
Finally, the ONS revealed that industrial production rose by 0.4 per cent in November. But the lift is wholly explained by a 0.6 per cent jump in energy extraction. For the second month in a row manufacturing output was flat on the previous month. On an annual basis, UK manufacturing is now 7.7 per cent down on the levels seen a year ago. It was up 0.4 per cent in the last quarter, however.
No doubt the cheap pound will help boost manufacturing, eventually, but there is no sign of this happening yet.
