Quarterly figures for manufacturing suggest economic upswing is continuing, and trade deficit contracting, says Team IFM.
London, May 11: The UK’s economy could be back to its pre-meltdown figures in June, an independent study said on Friday, while official statistics showed manufacturing gathering steam and trade figures improving in March. An industry body had earlier said the critical construction sector had also registered a slight upswing in April.
“Our monthly estimates of GDP suggest that output grew by 1.0 per cent in the four months ending in April after growth of 0.8 per cent in the three months ending in March 2014,” the study by the National Institute of Economic and Social Research (NIESR) said in a statement.
“By this estimate, the UK economy was just 0.17 per cent below its pre-recession peak at the end of April,” it said.
“Subject to data revisions and the uncertainties surrounding any of the sample predictions, it can reasonably be expected that the peak will be regained within the next month or so,” added NIESR, Britain’s longest established independent economic research institute.
Other highlights of its findings: the economy will grow by 2.9 percent this year and 2.4 percent the next; unemployment will average about 6.5 percent this year and CPI inflation will stay close to the 2 percent target.
On current plans, it said, the public sector finances will be in surplus in 2018-19.
Alongside, the seasonally adjusted deficit on trade in goods and services was estimated to have been £1.3 billion in March, showed data released by the UK’s Office for National Statistics (ONS). This was a much improved scenario compared to that of the month before, when deficit was £1.7 billion.
ONS data also showed manufacturing output rising 0.5 percent from February, when it gained 1 percent, beating forecast of a 0.3 percent production increase.
Meanwhile, construction companies continued to record strong output rises during April for the 12th straight month but at their slowest pace since October, with all three broad categories of activity registering robust growth, recent independent data released by the Chartered Institute of Purchasing and Supplies showed.
Two factors seemed to be fuelling the current stretch of construction sector expansion – the wettest winter in 250 years necessitating new building and repair work, and a general economic wellbeing, as reflected by the first quarter growth of 0.8 percent.
“The quarterly figures for industrial production, particularly manufacturing, suggest the economic upswing is continuing, if not accelerating,” BNP Paribas UK economist David Tinsley told the BBC. “This is a recovery not just based on the consumer, manufacturing is powering ahead too.”
GROWTH PATH
After growing only very marginally in 2012, growth accelerated rapidly, and is now running at around 3 percent year-on-year, NIESR said in its report.
“We forecast GDP growth of 2.9 per cent this year, an upward revision of 0.4 percentage points on our forecast published just three months ago,” it said. “This means that GDP will exceed its previous peak in 2008 in the next few months, although per capita GDP still remains well below its previous peak, and will not exceed it before 2017.”
NIESR also lifted GDP growth forecasts for 2015 through to 2017 to about 2.4 percent. Similarly, it said while real wages was expected to grow this year, they were currently about 6 percent below their 2009 level. “We do not expect them to make up that lost ground until 2018 or so,” it said.
The institute noted that unemployment rate has fallen by one percentage point in the past year, and was expected to drop to close to 6 percent from 2015.
But there was a downside to the “robust” growth in employment over the past few years, it said. Combined with economic weakness, increasing jobs meant a sharp fall in productivity growth. “Indeed, since 2008, UK productivity performance has closely tracked that of Italy,” NIECR said.
“This matters in the short run, since without any improvement in productivity, robust economic growth will see spare capacity absorbed relatively quickly,” it added. “It matters even more for the medium to long run since ultimately productivity is the main, if not the only, driver of real wages and overall prosperity.”
TRADE DISAPPOINTS
According to NIECR, “the UK’s trade performance remains disappointing”. This, it said, was because the current account deficit was running at about 4 percent of GDP, on average, over 2012-14, although improving subsequently as the global economy continues to strengthen.
The Office for National Statistics noted in a separate report that trade, which was a “key contributor to the overall economic growth in the UK”, was still in deficit zone in March though on a much narrower scale, suggesting that it had contributed to overall GDP growth.
Seasonally adjusted, deficit on trade in goods and services was estimated to have been £1.3 billion in March, compared with a deficit of £1.7 billion the month before.
The deficit on goods of £8.5 billion was partly offset by an estimated surplus of £7.2 billion on services, ONS said.
Exports of goods increased by 4.9 percent between February and March to £24.6 billion, “reflecting an increase in exports of finished manufactures, including jewellery and cars”, the data office observed.
On the import front, ONS said “a significant factor” was the purchase of aircraft, which saw imports of goods increase by 2.8 percent over the same period to £33.1 billion.
ONS data showed strong growth among manufacturers, with output growing 1.4 percent in the first quarter, the strongest pace since 2010. This was led by the 7.3 percent growth by the rubber and plastics sector. The pharmaceuticals sector, however, disappointed with a 5.8 percent fall.
Martin Beck, senior economic adviser to the EY ITEM Club, told broadcaster BBC that the second quarter of the year seemed “set fair for further strong growth in the manufacturing sector”.
CONSTRUCTION SOLID
The CIPS UK Construction Purchasing Managers’ Index or PMI, a measure of the country’s house building sector prepared by economy tracker Markit for the Chartered Institute of Purchasing and Supplies, said despite the overall rate of sectoral expansion, it had eased since March and was the least marked for six months.
This was highlighted by the seasonally adjusted PMI dipping from 62.5 to 60.8 in April, Markit said. The latest reading was nonetheless much higher than the 50.0 no-change threshold and well above the long-run survey average of 54.3.
Higher levels of construction output have now been recorded for 12 months running. Residential construction was the best performing broad area of activity, and the rate of expansion in April remained one of the fastest seen over the past 10 years.
Survey respondents noted a range of positive influences on new business volumes, particularly increased numbers of new housing starts, higher levels of public sector infrastructure spending and improving underlying economic conditions
“Strong rises in new work and payroll numbers provide ample optimism that output will expand strongly over the course of 2014,” said Tim Moore, Senior Economist at Markit and author of the CIPS survey report.