Economists see recession drawing to a close in UK

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Britain’s year-and-a-half long recession is set to draw to a close, after figures released yesterday showed manufacturing was at its most buoyant for two years in December.

Although official growth figures for the fourth quarter of 2009 are not expected to be published until the end of the month, the upbeat indicator was hailed by economists as pointing the way to the start of economic recovery.

Philip Shaw, an Investec economist, said: “The Office for National Statistics [ONS] may have disappointed us during most of 2009, but the indications are that all the main sectors of the economy are on their way back up.”

Manufacturing activity, as measured by the Chartered Institute of Purchasing and Supply, reached 54.1 in December, the highest level recorded since November 2007. Any figure over 50 on the scale indicates growth — and the consensus of City economists before the data was released was that December’s figure would be 52.

Investec is forecasting that the ONS will say that the UK economy grew by 0.4 per cent in the last quarter of the year, as Britain finally follows France and Germany out of the downturn that began in the second quarter of 2008 in the aftermath of the banking crisis. In the third quarter, growth fell by 0.2 per cent.

The growing optimism, coupled with data showing a rise in the number of mortgage approvals and lending, helped to lift the FTSE 100 by 87.46 points to 5,500.34, its highest level since August last year. Sterling rose against the dollar after the figures came out, but later fell back to end the day a sixth of a cent down at $1.61.

However, few believe that either the economy generally or manufacturing in particular are heading for a rapid resurgence, with possible tax rises or sudden cuts in public spending feared after the general election. “At this stage there is nothing to suggest that the recovery will be particularly vigorous,” said Mr Shaw.

Among manufacturers there is a concern whether, once stocks are replenished, the pace of growth will continue. Lee Hopley, chief economist of the EEF, the industry body, said: “While manufacturing ended the year on a high with a return to growth in the final months of last year, the question is whether the upswing will continue through 2010.”

Manufacturing represents about 15 per cent of the UK economy, and the battered sector has been helped by a recovery in car production, an uptick in exports helped by softness in sterling, and an end to the rundown of stocks. In November, UK car output was ahead by 15.7 per cent, the first increase seen since September 2008.

Malcolm Barr, a JPMorgan economist, said: “Although monthly releases remain choppy, the key orders and output readings are starting to run at levels well above the long-run averages for this survey, consistent with a manufacturing sector which is contributing to an upswing in growth.”


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