Net exports save struggling UK economy
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The details of the UK’s first quarter economic performance were released last week and I was surprised that the figures received relatively little coverage given their shock value.
In a nutshell, the UK was only spared a re-entry into recession by an abnormally high contribution from net exports. The underlying figures were pretty dire, with consumption and business investment recording recession-like declines. The poor performance of the private sector is perhaps particularly concerning given its importance to establishing the sustainability of the fragile economic recovery - it needs to offset the government austerity regime.
Before considering emigration, it is of course possible that the weakness proves to be temporary and certainly the employment data and business surveys point to a better outlook (although they also did in Q1). Moreover, the nominal GDP figures were strong, with growth in Q1 of 2.2% quarter-on-quarter (q/q) or at an annual rate of nearly 9%!
From a household consumption perspective, the respective figures were 2.1% nominal q/q compared with -0.6% real and suggest UK consumers spent merrily at a near 8.5% per year rate, just much more went on (temporarily) higher prices. Together with the prospect of future revisions it is probably sensible to treat the “real” numbers with a degree of caution if not outright suspicion.
Even so, the net trade figures are highly unlikely to be repeated and, as has been suggested many times before, the UK economic outlook can be described as challenging at best. It is hard to envisage any near-term rate rise and here’s hoping that Sterling doesn’t slide precipitously and overall confidence in the UK can be maintained.
Andy Brunner is an investment strategist at OBSR.
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