May 12, 2009 / 12:37 PM / 11 years ago

Output and sales figures offer hope

LONDON (Reuters) - A clutch of better-than-expected economic data on Tuesday suggested Britain may have come through the worst of the recession, but signs the labour market remains in poor shape dampened optimism.

An employee works on the production line at the Nissan car factory in Washington, March 20, 2009. REUTERS/Nigel Roddis

Manufacturing output recorded its smallest monthly fall in more than a year in March, pointing to a possible end in prospect for the sector’s contraction after the worst calendar quarter since records began.

Leading economic think-tank NIESR said there were signs the economy stabilised in April, which along with news of a jump in retail sales and a marked slowdown in house price falls, boosted hopes Britain may be starting to emerge from recession.

However, firms continued to lay off workers and data rushed out a day early after a leak showed the international ILO jobless rate hitting 7.1 percent in the three months to March — the highest since the Labour government took power in 1997.

The number of people without a job rose by 244,000 on this measure to above 2.2 million — the biggest rise since the downturn of 1981 and reinforcing fears the jobless toll could hit 3 million by next year.

And a drop in bankers’ bonuses this year meant earnings in the three months to March fell for the first time on record.

“The labour market definitely has further to weaken, and further job losses over the course of this year could well give another leg down to spending in the UK, damaging the prospects for a sustained recovery,” said Colin Ellis, economist at Daiwa Securities.

The economy shrank by 1.9 percent in the first three months of this year, the steepest fall in 30 years.

Facing an election by mid-2010, Labour is forecasting a return to growth by the end of this year as massive monetary and fiscal stimulus measures kick in, but most analysts reckon this is way too optimistic.

Labour is trailing the Conservatives in polls.

The Bank of England, which has slashed interest rates to a record low of 0.5 percent and last week boosted its programme of government and corporate bond purchases to pump money through the economy, is likely to revise down its growth forecasts in its quarterly Inflation Report on Wednesday.


But Tuesday’s jobs data also provided a glimmer of hope the pace of job-shedding may be letting up as the number of people claiming unemployment benefit rose by a smaller-than-expected 57,100 last month.

Official figures on manufacturing and industrial output, meanwhile, suggested the pace of decline in these sectors eased in March.

Manufacturing, which accounts for just over 14 percent of British economic output, fell by a much smaller than expected 0.1 percent in March, against analysts’ forecasts for a 0.8 percent decline, the slowest rate since February last year.

Industrial production, which makes up 18 percent of GDP, showed a similar pattern. Output fell 0.6 percent in March, less than the 0.8 percent forecast, and February’s decline was scaled back to 0.7 percent from 1.0 percent.

“All in all, fairly positive data for the UK economy this morning,” said Philip Shaw, chief economist with Investec.

“The industrial production figures are significantly better than expected and the February fall was revised sharply upwards. It appears that the industrial side of the economy wasn’t as weak through the first quarter.”


Retail sales rose 4.6 percent on the year in April, their strongest increase in 3 years, according to the British Retail Consortium, although it warned the figures were flattered by the timing of the Easter break and warm weather.

A survey by the Royal Institution of Chartered Surveyors showed house prices fell at their slowest rate in 15 months in April.

Britain’s trade balance, meanwhile, shrank to its narrowest in two years in March to 6.589 billion pounds, from February’s downwardly revised 6.834 billion pounds.

But the improving balance reflects an overall slump in trade volumes, rather than the export growth which the government and Bank of England hope will drive Britain’s recovery from its sharpest recession in 60 years.

First quarter goods exports are 16 percent lower than last year, and imports are 17 percent down.

“A decent contribution to overall GDP growth from net trade looks unlikely this year, or perhaps even next year,” said economist Vicky Redwood at Capital Economics — though she said there was stronger medium-term potential for exports.

Sterling has fallen by a quarter against major currencies over the past year, though the ONS said it was not possible to tell if this was the reason for the smaller deficit.

Editing by Stephen Nisbet

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below