Posted by

Steve Hughes, Senior Economic Adviser

03 Apr 2012

It is particularly encouraging to see firms reporting reasonable strength in exporting and investment activity, two components of GDP that the Office for Budget Responsibility expect to contribute heavily to growth in 2013.

But, despite being positive, a note of caution should be included in any assessment of the QES numbers. While economic activity has seemingly bounced back following a weak second half of 2011, the results are still nowhere near pre-recession levels, and overall point towards an economy that is finding it difficult to find a good base from which to grow. The QES gives some very good indications as to why this is the case: Cashflow positions are chronically weak; and, rising prices (although there are signs that this is easing) are increasing the cost of doing business and are eating away at margins.

We will find out on April 25th if on the ONS’s first estimate of GDP growth the UK has entered a technical recession. The OECD has predicted that we will, and RBS economists have suggested that it is a very real possibility. Others – including the BCC and the OBR – have forecast that recession will be avoided. Whichever way it goes, there is an underlying reality that the first estimate of GDP can later get revised up or down as more information and data becomes available. In this context, if the numbers do show a double-dip it would not tell us that much we didn’t already know about the UK economy. Ultimately, we are in a period of stagnation and it is only through measures to support the business community that a way out presents itself. Policies that go further than the recent Budget in the areas of access to finance, deregulation and export support would be a good starting point.