Positive data on the UK economy don’t totally douse fear of a triple-dip recession

April 9, 2013
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Euro Crunch
April 9, 2013

The UK economy saw another dram of possibly good news today, following on last week’s unexpectedly strong UK services PMI data. February industrial production rose 1.o% month-on-month, while manufacturing picked up 0.8% from January. That was way more than analysts expected—and much better than January, when both measures contracted markedly. Because the two combined make up a little more than one-fifth of the UK economy (services contribute around three-quarters of GDP, with a teeny fraction allotted to agriculture), these are critical measures of the UK’s economic health. Here’s how they look in chart form, via Markit:

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The UK’s February industrial and manufacturing production.(Markit)

But as you can see, these data are really quite erratic. And that’s a reminder that optimism about these figures is at this point little more than a silver-lining reading of the situation. For one thing, the Office for National Statistics slashed its January estimate for manufacturing growth from -1.5% to -1.9%. So that not only means that February’s data is rising off a very low base, but it should also mute confidence in the data themselves.

In addition, we’re still looking at year-on-year declines for both measures. While there might be a hint that that’s moderating, that deterioration has been fairly consistent over the last 14 or so months:

ukcollag

Finally, though, comes UK’s trade balance, which grew to a deficit of £3.6 billion in February, from £2.5 billion in January. The deficit in goods slipped to £9.4 billion, from £8.2 billion. Exports to the US fell by £329 million—part of a 4.7% drop in exports to non-EU countries, extending a slump that began in October 2011, said the ONS (pdf). The good news was that services posted a surplus of £5.8 billion, in keeping with the uptrend in that critical engine of the UK economy. Here’s what the goods deficit looked like:

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Based on today’s and other data, Markit expects that the UK economy grew between 0.1% and 0.2% in the first quarter of 2013, after a 0.3% contraction in Q4 2012. That optimism helped bump the sterling up to a six-week high against the dollar. However, the continuing erosion of demand for UK exports keeps the possibility of a triple-dip recession too close for much comfort.

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