This morning in the United Kingdom the good surprise was the higher than expected growth figure. During the first quarter, GDP was up by 1.2% at annual rate and by 0.6% compared to the first quarter of 2012. Carry over growth for 2013 at the end of the first quarter is between 0.4 and 0.5%.
(To be more precise: GDP figures are published with one decimal. It was 103.2 in Q1 2012 and 103.6 in the first quarter of 2013. This makes 0.4% quarterly change and 1.6 at annual rate. But the official numbers are 0.3 and 1.2%. Published level numbers lack of precision to match official numbers)
The chart above shows that the economy still follows a very slow trend. This latter started in summer 2010. With today’s publication we cannot infer that the dynamic has changed. It’s a positive figure but it does not show a change in the business cycle.
The second chart is a confirmation of this perception. Before the crisis there was persistence from one quarter to the other. It’s clear looking at sequences of blue bars before 2008. This is no longer the case. A positive number is followed by a negative one. The one year change line remains very close to the axis showing that growth is close to 0% without change in trend.
The third chart shows contributions to quarterly GDP growth. For the first estimate, only production figures are published. The demand side (consumption, investment, exports,…) is available at the second publication in few weeks.
Private services have the main contribution to growth this quarter. Distribution-Hotels-Catering and Transport-Communication are the main contributors. Business services-Finance had strong contributions in the last two quarters. The first quarter figure is still positive but weaker.
Government services have had an almost strong contribution this quarter. Construction has a negative contribution that probably reflects the cold and snowy period in March. Good producing sector has a null contribution this quarter. Mining and oil sector which had a negative contribution at the end of 2012 for technical reason recovers during the first three months. But the manufacturing sector contribution is still negative, that what was seen with industrial production figures. The low level of world trade does not help this sector.
As it was seen in the first chart, the positive number for Q1 is not the seed of a strong and robust recovery. It is still in the trend that started in summer 2010. During the second quarter we can expect a weaker growth number. Since April 1st, the Cameron government has taken measures that will affect consumers’ behavior. There are higher taxes and higher social costs that will have an impact mainly on low incomes (see here). People with income lower than the median consumes all and does not save. These government measures will have an impact on internal demand. At the same time main UK partners also follow a slow and choppy trend. That what was seen will all the surveys that were published this week (see here). CBI survey in UK was weak also in April. Companies do not expect that a positive trend will be seen during spring.
The composition of these two effects, internal and external, will not allow continuing on a positive tone. The positive figure for growth has eliminated the triple dip but has not deeply change questions everyone has on UK future economic dynamic.
Contributions (sectorial details)