Hurrah! The ONS has hiked its original estimate of how the UK economy performed in the last quarter of 2009 – rather than measly growth of 0.1%, we in fact enjoyed a vibrant, thrusting, tigerish 0.3%. OK, so that still means GDP was down 3.3% on an annualised basis – but these Government-produced figures will be music to the ears of, erm, the Government, which will undoubtedly now take all the credit for this ‘recovery’ (because the recession was all the Americans’ fault, remember). Sadly, however, given that the pound has taken yet another hammering this morning, the financial markets don’t appear to share this heady optimism…
Economists had been expecting an upwards revision ever since the original estimate came in so far below its predictions (because obviously they couldn’t have got it wrong). But the dismal news on business investment yesterday did rather suggest otherwise – with corporate confidence at such a low ebb, it was a bit hard to see any sign of a commercial recovery. However, the ONS said today that both services and production actually grew more quickly during the quarter than first thought, pushing up the GDP estimate from 0.1% to the dizzy heights of 0.3%.
Although it does show how potentially unreliable the initial estimate usually is (it’s a horrendously complicated calculation at the best of times, and particularly so soon after the end of the quarter), you’d think this would at least create a bit more positivity about our prospects for 2010. For instance, it allows the Government to claim that we’re growing three times faster than everyone thought…
Unfortunately, the markets don’t seem to be buying it: after hitting a nine-month low against the dollar yesterday, the pound was down again this morning. It’s now heading rapidly towards $1.50 – and although legendary investor Jim Rogers has denied saying sterling was ‘on the brink of a collapse’ (as widely reported today), an economist at UBS has just warned that the pound could hit $1.05 or below’ if an incoming Tory government wields the axe too violently. So if you’re planning a US holiday, you’d better do it soon, before we reach parity.
So why the long faces (and short selling)? Well, the size of the deficit is the big worry; investors seem equally concerned about how we’re going to pay our debts, and what will happen if we do it too early. Others argue that our current recovery is just a temporary bounce caused by the massive injections of public cash, and that the UK is fundamentally still a bit of a basket case.
Hopefully today’s GDP’s revision will turn out to be more accurate than the initial estimate. But sadly, that doesn’t necessarily mean we’re back on an upward curve.
In today's bulletin:
UK growth revised up - as pound slides again
HBOS debt pile pushes Lloyds to £6.3bn loss
Get high with a little help from your friends?
The hidden cost of price cuts
Why the rise in forced retirements is bad for the UK