UK ‘Back in Technical Recession’ – Views From The Mile

Overall, yes, today’s ‘Flash’ UK GDP figures aren’t pretty.

 

 But in perspective, the result is generally being taken to indicate a far less dire state of play for the UK’s economic state and performance than the headlines [data and Fleet Street] suggest.

 

Also, it goes without saying that we need to come armed to these figures with the idea of ‘technical recession.’


With that in mind, the notion that the UK was not in recession yesterday, or last week, or last month or even last year – but that the economic climate has since degenerated into one during the last quarter, is a bit silly.

 

 

 

Capital Economics Chief Global Economist Julian Jessop says the market’s reaction was rational:

 

“The market reaction to the news that the UK is back in recession, at least on the basis of two successive quarterly declines in GDP, was remarkably muted.

 

Sterling wobbled only briefly, while gilt yields and the FTSE still rose over the course of the day. This sanguine response does make some sense.

 

After all, the difference between the 0.2% q/q fall reported in the preliminary data for Q1 and the 0.1% q/q rise expected by the market is pretty small and could yet be revised away.

 

Either way, the level of GDP is still well below its peak. What happened in the first quarter is also largely old news, with the forward-looking surveys mostly a little better.

 

The MPC itself pointed to the possibility of a drop in output in Q1 at its last meeting and indicated that it would place greater weight on the more upbeat surveys.”

 

 

 

UniCredit Global Chief Economist Erik F. Nielsen reminds that the data are not a major surprise:

 

“While consensus and we expected modest positive growth, this outcome doesn’t come as a total surprise. There was great uncertainty about today’s figure: on one hand, business surveys pointed to decent positive growth; on the other hand, we knew that construction was going to be a significant drag (output in the sector fell -3% qoq) and that output in the production sector was going to be negative (-0.4%).

 

What was a bit surprising, and disappointing, was the weakness in the services sector (+0.1%), which contrasted with the positive message from business surveys.”

 

 

Monument Securities Chief Global Economist Stephen Lewis casts a sceptical eye over the important Construction component of the data:

 

“Last year the official statisticians estimated the rate of contraction in construction activity, 2011Q1 on 2010Q4, at 4.7%, compared with which this year’s 3.0% decline might be regarded as mild.

 

The point is, though, that the ONS now estimates the quarterly fall in construction output in 2011Q1 at only 1.5%.  If a similar adjustment is eventually made to the 2012Q1 preliminary estimate, it may turn out that construction output did not fall at all in that quarter. 

 

Since construction makes up 8% of total GDP, an adjustment on that scale might even leave GDP growth very slightly positive for the quarter.

 

Despite the negative 2012Q1 GDP data, all is not gloom for the UK economy, or so it appears.  The latest quarterly CBI industrial trends survey has uncovered remarkable buoyancy in respondents’ confidence.  The survey’s balance of business optimism swung from -25 in January to +22 in April.”

 

 

 

 

UBS Strategist Chris Walker:

 

“Leading indicators such as services PMI have stabilised since earlier in the year and returned to expansionary territory. We think today’s weak Q1 GDP print is liable to be revised later, and the weak headline number is hard to reconcile with recent forward-looking data.”

 

 

 

BNP Paribas UK Economist David Tinsley:

 

“There’s something for everyone in the UK data today. On one reading the UK is in a double-dip recession. On another the manufacturing sector is poised to lead the economy to sunlit uplands of sustainable growth. The truth, probably, lies somewhere in between.”

 

Compiled by ThSM

 

 

 

 

 

 

 

 

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