Do we have reasons to be cheerful?

May 26 2010 by Andrew Hebden, The Journal

ARE we seeing the first tentative signs of the much-talked-of rebalancing of the UK economy?

It is dangerous, of course, to read too much into the latest quarterly GDP statistics, but those with a positive disposition could certainly find reasons for optimism in there.

Most notably, the overall increase in GDP growth by 0.3% in the first quarter of the year (up from the previous estimate of 0.2%) was the resilient performance from the manufacturing sector.

Its growth of 1.2% was the strongest performance from the beleaguered sector for four years and confirms the trends seen in other surveys.

Also encouraging in yesterday’s figures was the news that investment levels were up, a sign that businesses are becoming increasingly profitable and upbeat about their future prospects. Again, we are dealing in small numbers so we shouldn’t get carried away, but it’s a step in the right direction.

Tempering this optimism is the continued sluggishness of UK exports and the impact of the cutbacks announced by the new coalition government this week.

It had been hoped that exports would be rallied by the slump in sterling but that doesn’t seem to have materialised. Considering the recent problems witnessed by our European trading partners, we can probably expect further bad news on this front in the next set of figures.

Meanwhile, leaders of business organisations have been virtually unanimous in voicing their support for the public-sector spending cuts, and they do indeed send out a positive message regarding the Government’s determination to tackle this problem.

But while applauding the spirit of the cuts, some of their members may well be less enthusiastic a bout the harsh reality of what it means to their own businesses. Many will be counting the cost of lucrative Government contracts biting the dust, while others will be fearing the worst once the various departments identify where the axe will fall.

While these cuts are probably not enough to trigger a double-dip recession, predictions of anything other than very modest growth for the coming months seem wildly optimistic at the moment.

Andrew Hebden - The Voice of nebusiness
andrew.hebden@ncjmedia.co.uk