The last couple of weeks have shown some promising signs that the cogs of the UK economy are, at last, grinding back into life. Today, the Organisation for Economic Co-operation and Development (OECD), based in Paris, reckons that the UK economy expanded slightly more than the ‘trend’ trajectory that the body had mapped out for April.
The OECD’s indicator gave a reading of 100.8 for the UK in April, up from 100.7 in February and March, and 100.6 in the two months before that. If the reading is 100, that means an economy is exactly ‘on trend’ (in line with forecasts), so the higher figures are good news. Reports from the OECD are supposed to highlight the major turning points of economic cycles, and recently they have shown that most of the world’s large economies are chalking up incremental improvements.
The biggest winners are the US and Japan, which have been hovering around the 101.0 mark for some time. Closer to home, even the euro area is getting through by the skin of its teeth, with a reading of 100.1. Perhaps Francois Hollande’s cavalier remarks about the euro debt crisis this morning had some merit, after all.
It’s worth noting that last week, Markit’s Purchasing Managers’ Index (PMI) for the UK rose to a point score of 54.9 in May, compared with 52.9 the previous month. That is the best we’ve seen since March last year and is well above what the City was predicting. Most analysts thought the figure would come in at 53 on the nose. For the uninitiated, anything above 50 represents growth.
The report also yielded encouraging news about other sectors – May marked the first month since March 2012 that every sector of the economy, including manufacturing and construction, was growing. The good news about services’ growth in particular, is that this sector is responsible for about 75% of UK GDP, so rapid growth here is good news for the entire economy.
It hasn’t escaped our notice that last week the OECD was all doom-and-gloom about economic forecasts, so it’s hard to know where they actually stand. All that passion et incertitude is obviously making it hard for the Parisians to read the meter.
Unable to resist the temptation to chuck some economic jargon into its official statement, the OECD says: ‘GDP growth is projected to rise gradually over the next two years... Significantly more growth would be forthcoming if structural bottlenecks were swept away by fundamental structural reforms.’ It then adds, more simply, that ‘in the euro area as a whole, the [indicators show] a gain in growth momentum.’
Let’s hope there are no more cataclysms across the Channel.