Economy set to speed up and beat UK's rivals, says OECD

Election boost for Brown as second poll confirms rising trend in business confidence

The Government's claim that Britain is one of the better performers among the advanced economies received a boost yesterday.

The latest growth forecasts from the Organisation for Economic Co-operation and Development (OECD), and a prediction from a leading UK economist, suggested that official figures for gross domestic product (GDP) will show an acceleration in the pace of recovery when they are published on 23 April – two weeks before the general election.

Fears that the severe weather in January might depress economic activity seem to have been overdone. The OECD also seems to side with the Government's argument that fiscal tightening should take place later rather than sooner.

By contrast, the latest assessment of eurozone GDP shows that the single currency area, which has been riven by the Greek sovereign debt crisis, almost lapsed back into recession at the end of last year.

The EU's statistical directorate, Eurostat, said the minimal 0.1 per cent growth it had estimated was being revised down to nil. A collapse in private-sector investment was responsible for the disappointing result. The OECD said that Germany, the largest economy in the eurozone, would see its economy contract in the first quarter of this year, despite the pick-up in world trade. As the UK's largest export market and source of investment, a slowdown in the eurozone will inevitably have a dampening effect on Britain as the year wears on.

The chief economist at Markit, the company that conducts surveys of business confidence for the Chartered Institute of Purchasing and Supply, is predicting a pick-up in UK growth to 0.5 per cent in the first quarter of this year, up from 0.4 per cent in the last three months of 2009.

Chris Williamson says the economy is witnessing "an ongoing, robust expansion of private-sector output" and "the strongest rate of growth since the third quarter of 2007".

GDP is being boosted by firms rebuilding stock levels and improving output and investment. The CIPS's surveys indicate an imminent end to the two-year recession in the construction industry. Yesterday, it also reported that business confidence in the services sector, which comprises about 70 per cent of GDP, slipped back slightly last month but remained firmly in positive, expansionary territory, which is an encouraging omen.

With a marked bounce back in UK manufacturing, the growing consensus view is that a 0.5 per cent boost to GDP will be announced on 23 April. The OECD also reported a 0.5 per cent rise, with a further acceleration to 0.8 per cent in the second quarter, which would leave the UK with the second-best performance among the G7 group of industrialised nations, behind Canada.

However, the OECD also sounded a cautious note, saying: "Despite some encouraging signs on activity, the fragility of the recovery, a frail labour market and possible headwinds coming from financial markets underscore the need for caution in the removal of policy support. Central banks have already begun to rein in the exceptional liquidity stimulus injected during the recession. The normalisation of policy interest rates should be carried out at a pace that will be contingent on the strength of the recovery."

On fiscal policy, the OECD pointedly added: "Consolidation should start in 2011, or earlier where needed, and progress gradually so as not to undermine the incipient recovery."

Meanwhile, the Office for National Statistics said the profitability of British business had risen for the first time since the downturn began. The net rate of return by private non-financial corporations in the fourth quarter of 2009 was 11.6 per cent, edging up from 11.5 per cent in the period from July to September.

Manufacturing was the least profitable sector of the economy, with returns reaching just 8.3 per cent; the offshore oil industry had a 29.8 per cent net rate of return. Profitability will have been boosted by restrained wage growth.

The Bank of England's Monetary Policy Committee will announce its latest decision in interest rates and quantitative easing today. City economists unanimously expect no change at such a politically-charged time.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness