Outlook Does the latest manufacturing data – the purchasing managers' index from the CIPS is now at a 16-year high – justify the upbeat forecast made on Monday by the Office for Budget Responsibility? It has cut its June estimate of 2011 GDP growth, which was 2.3 per cent, but only to 2.1 per cent. That compares to the 1.9 per cent average figure from other independent forecasters. Not on its own is the short answer. For while the continuation of the rebalancing story for the UK economy is welcome, the figures do not look as if they are going to stack up.
Yesterday's data fits with other evidence that Britain's export performance has genuinely been much stronger in the second half of the year: indeed, about half of the third quarter growth of 0.8 per cent came from net trade. The bad news, however, is that the outlook is not so positive. The strength of sterling is a threat to exporters. So too is the ongoing crisis in the eurozone, our most crucial market. Export growth can continue, but the pace is sure to slow.
Elsewhere in the economy, the picture is even less happy. The consumer recovery is already waning, with household spending rising by only 0.3 per cent in the third quarter. The forthcoming VAT rise may encourage a pre-Christmas spending splurge – and low interest rates will be of some limited help for a while yet – but consumer confidence is slipping, house prices are falling and, as the OBR itself points out, unemployment is set to rise.
To add to those worries, the Bank of England's data on money supply and credit continue to make dismal reading and the fear of eurozone contagion is mounting by the day.
None of this necessarily means that the UK is heading towards double-dip territory – fears of that outcome for 2011 have receded. But even with the improved performance of the manufacturing sector, the worry must be that when the OBR warns of margin for error on both the upside and the downside of its forecasts, the latter is more likely. George Osborne's March Budget may well have to take account of another downgrade from the Treasury's independent forecaster.