of Gross Domestic Product in the last quarter of 2011, that ‘I don’t know what next week’s GDP is going to be. Our independent forecaster (the Office of Budget Responsibility) has warned us it may well be a negative number.’ The BBC News economics editor, Stephanie Flanders, who interviewed him on an empty bullet train parked outside the main Tokyo rail depot said that the Chancellor had admitted that the UK economy ‘probably wasn’t going anywhere either, at least in the fourth quarter of 2011’ and added that he had reminded her – ‘not once, but twice’ – that the OBR had forecast that GDP would be negative in those three months. Ms Flanders added dryly that she thought that the second reminder had been ‘very helpful of him. I might have forgotten’. In the event the possibility that GDP might contract in the fourth


quarter of 2011 had been well-trailed by myriad well-respected forecasting groups such as Ernst & Young’s highly thought of ITEM Club – see the February edition of this column. The outcome, a 0.2 per cent fall in GDP on the previous quarter, reflected sharp falls in the production industries’ and in construction’s output; the service sector’s output remained unchanged. Attention then shifted to the likely outcome for the first quarter of 2012. The National Institute of Economic and Social Research (NIESR) said the British economy was likely to shrink by 0.2 per cent and 0.1per cent in the first and second quarters of 2012 respectively, following the 0.2 per cent contraction in GDP in the final quarter of 2011. Should the forecast first quarter reduction actually take place then, combined with the last quarter 2011 contraction, the UK would have technically have fallen back into recession. I have to admit that NIESR’s gloomy forecast took me by


surprise in that the closely watched Markit/CIPS Purchasing Managers Index (PMI) for manufacturing in January 2012 rose to an eight-month high with output expanding at its highest rate since March 2011 and new orders rising for the first time in seven months; average input prices fell for the third successive month. Rob Dobson, Senior Economist at Markit who authored the January 2012 report noted that ‘this surprising rebound in January means a return to recession is by no means a certainty’. The outcome in the construction sector was more nuanced with the latest reading pointing to continuing growth of output; however,


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the rate of expansion slowed to the weakest in four months. Nevertheless, construction firms were more ‘upbeat’ about 2012 with confidence showing the second-greatest monthly jump in the survey’s history. The report’s author suggested that growth in the construction sector might pick up again in coming months and, on top of the surprisingly strong start to 2012 reported by the manufacturing sector, raised hopes that ‘a slide back into recession may yet be avoided.’ The service sector started the year with activity levels and new business both rising at ‘marked and accelerated rates’. Business confidence in the service sector showed the largest monthly gain in the survey’s history, while employment increased to the greatest degree in nearly four years. Taken with improvements in manufacturing and, to a lesser extent in the construction sectors, the upturn in the service sector suggested what Markit/CIPS called a ‘resounding revival of UK economic growth in January 2012’ and that ‘a slide back into recession is now looking increasingly unlikely’. This certainly seemed to be the view of the Confederation of


British Industries. Although the CBI cut its forecast for GDP growth for both 2012 and 2013, its economists expect the UK economy to avoid the technical definition of a recession, due to rising business


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FEED COMPOUNDER MARCH 2012 PAGE 11


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