Monday, April 25, 2011

The "real" recession is about to begin: UK Gross Domestic Product for the first quarter is announced on Wednesday

The waiting is nearly over. Gross Domestic Product for the first quarter is announced on Wednesday – rarely has the data caused so much anticipation.

Last quarter's surprise contraction has created confusion over the economy's direction of travel. With the austerity measures now biting hard, the figures are also seen as the first major test of the Government's fiscal strategy.

Will the squeeze, by damaging growth, prove self-defeating, or as the Chancellor anticipates, can the private sector be expected to step up to the plate and invest on the scale necessary to replace the jobs and demand being shed by a shrinking state?

Wednesday's data is unlikely to provide conclusive answers, but it ought at least to help us better understand whether the final three months of last year were indeed just a weather induced blip or a harbinger of something rather more ominous to come.

The forward looking indicators have been mixed. Some, such as the Composite Purchasing Managers Index have been consistent with relatively decent levels of economic growth of up to 1pc quarter-on-quarter. Anything less might be regarded as a disappointment, as you would expect something of a claw back in activity after the pre-Christmas snow.

Last week's retail sales data was also stronger than expected given the VAT rise and the squeeze on disposable incomes. Yet other data has pointed to continued weakness in construction activity and consumption. (read more)