The ONS has nudged up its estimate for the last quarter of last year because of slightly better than expected data from the production, service and construction industries – and since the snow is thought to have lopped 0.5% off GDP, that means the economy would otherwise have been basically flat. Glass-half-full types will argue that ‘flat’ is better than ‘shrinking’. But we suspect the majority will feel that this quarter was still a big setback to our recovery hopes. And although the economy may have enjoyed a rebound in January, it doesn’t look as though that momentum has been carried into February and March.
What’s more, the Government’s efforts to rebalance the economy and boost exports don’t seem to be bearing fruit yet: the UK’s trade deficit for the quarter was a record £27bn, as imports grew much faster than exports (although the services sector was £12bn in surplus). And the overall current account deficit was £10.5bn, the highest since Q2 2009.
These gargantuan figures might seem a bit remote and hard to comprehend. But that’s not the case with disposable incomes, which the ONS reckons dropped by 0.5% during 2010. Household savings also fell slightly, suggesting that people have less cash to put aside. With inflation running at more than 4%, and wages not really going anywhere, this isn’t entirely surprising. But the fact that this is the first decline in 30 years shows just how tough times are.
Since the Government’s cuts haven’t even properly kicked in yet, it’s a bit hard to see demand roaring back in the coming months. That 1.7% rise in GDP the Office for Budget Responsibility has pencilled in for 2011 is looking like more of a ‘stretch target’ by the day.