Recovery hopes hit by two-way pull
Conflicting data for Bank as negative growth is followed by signs of revival in major industries
Sunday 29 April 2012
Deepening confusion over the health of the recovery looms this week as the latest snapshots of Britain's major industries point to steady growth, despite official figures plunging the UK into a double-dip recession.
April's activity surveys for manufacturers, builders and services firms, compiled by the Chartered Institute of Purchasing & Supply, are set to show advances for all three sectors – adding to the dilemma faced by the Bank of England's policymakers.
In the first three months of 2012, Cips surveys signalled 0.5 per cent growth for the overall economy, although the verdict of the Office for National Statistics was a shock 0.2 per cent decline. This second successive quarter of contraction leaves the UK technically back in recession.
Economists expect the latest round of purchasing manager surveys – where a score above 50 signals expansion – to reveal manufacturers, builders and services firms comfortably in growth territory after a buoyant March. The picture contrasts with the last official figures which revealed a surprise 0.4 per cent slide for the UK's services firms – which account for three-quarters of the economy – as well as a 1 per cent fall in output for manufacturers.
The conflicting signs come at a critical time for the Bank's monetary policy committee, which is also contending with a shock rise in inflation in March. The Bank's inflation benchmark, the Consumer Prices Index, rose for the first time since September in March, hitting 3.5 per cent to stand at almost double the MPC's 2 per cent target.
The MPC's next meeting in two weeks' time looks set up for a fierce debate as worries over inflation – which prompted dovish Adam Posen to drop his call for an extra £25bn in quantitative easing this month – clash with fresh concerns over stagnant growth.
Investec economist Victoria Cadman said: "Picking through UK data to determine the strength or weakness of the UK's recovery footing has become an increasingly difficult task of late: we don't envy the task the MPC faces at its May meeting in trying to set policy against this mixed data backdrop and with 'sticky inflation'."
The Bank has so far been inclined to give more weight to the stronger industry surveys than the official data, which could even stretch to a third quarter of contraction as a result of the impact of the Diamond Jubilee bank holiday.
Lloyds Bank Capital Markets economist David Page added that the current level of the services PMI – around 55 – had usually been consistent with services growth of around 0.75 per cent per quarter, far above the 0.1 per cent estimated by the ONS.
"This would add to the confusion about the true pace of service sector expansion and the suspicion the committee appears to harbour of firmer activity," he added.
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