It's a return to economic growth... but only just.
It's time for another of our quarterly snapshots of the UK economy.
After contracting for six successive quarters, there was a return to growth in the final quarter of 2009. But it was close: the eventual outturn, released at 9:30am this morning, showed that the economy grew by just 0.1%. Thus ends the longest recession since records began in 1955, and the steepest collapse in economic output since the Great Depression of the 1920s.
Although perilously close to zero growth, it's still a far better GDP figure than the 0.4% contraction for Q3, which shocked economists, confounded the City, and left the UK in recession even as economies such as France and Germany powered out of it.
A modest recovery
But economists were once again surprised at the slow pace of the recovery. "This is another desperately disappointing GDP release," said Howard Archer, chief European & UK economist at analysts IHS Global Insight, which had predicted a figure of 0.4% growth. "GDP growth of 0.1% quarter-on-quarter was well below expectations, with service sector output and industrial production only edging up by 0.1%, and construction output stagnating after expanding in the previous two quarters."
As a result, the UK will struggle to grow by more than 1% in 2010, expects IHS -- and from such a low base, it's entirely possible that there could be a relapse in the current quarter.
That said, today's GDP is a preliminary estimate, based on little more than 40% of the data that will eventually become available, and will be revised -- hopefully upwards -- in the coming weeks. The preliminary estimate of a 0.4% contraction in Q3, for instance, was subsequently revised to a contraction of 0.2%.
Still, growth is growth, and very welcome. For the record, Q4's 0.1% improvement in output means that the economy shrank by "just" 4.8% in 2009. And in terms of GDP-per-person, that leaves us all slightly worse off than we were in 2005, according to figures from economic advisory group Oxford Economics.
Jobs, trade and public sector borrowing
Further modest good news came in the form of the unemployment figures. While the table below shows unemployment apparently constant at 2.5 million, the count actually fell slightly by 7,000 people over the quarter to 2.46 million, bringing to an end the continued rise in unemployment that began in the summer of 2008. The fall is reflected in the slight improvement in the unemployment rate -- from 7.9% of the labour force to 7.8% -- and is hopefully a sign of better things to come.
That said, the number of people in part-time employment now stands at a record high of 7.71 million, having risen again during the quarter. More than a million of these people were working part-time because they could not find a full-time job -- the highest figure since records began in 1992, according to the Office of National Statistics.
The trade figures, too, were better than expected, with the balance of payments showing a marked improvement over the quarter. Exports were up 7% over the quarter, and while imports were lifted appreciably by the vehicle scrappage scheme, November's trade figures -- the latest -- mark a modest-but-distinct improvement over October.
The good news continued with the public sector borrowing requirement. Yes, it's up, at a record £15.7 billion, but the rise was certainly not as much as had been feared: analysts had figures as high as £18.7 billion pencilled-in. Going forward, recovery-led rising tax revenues must surely help, as will the return of VAT to 17.5%.
Speaking of which, the inflation figure bucked the 'modest good news' trend with a vengeance, coming in at 2.9% -- which economists agreed was "a nasty shock". Prices in December 2008 (the point of comparison) had been unusually low -- due to factors such as the fall in VAT, sharp falls in the price of oil, and steep High Street pre-Christmas discounting -- so some increase had been expected.
But 2.9% was far more than either economists or the Bank of England had expected, and could herald a rise in interest rates sooner rather than later. And in the short term, worse is to come. VAT returning to 17.5% will push the inflation figure even higher -- perhaps to 3.5% or more -- before there will be any respite. Certainly, the expectation must now be that the Bank's government-authorised £200 billion programme of quantitative easing has run its course.
| Macroeconomic indicators | Q4 2009 | Q3 2009 |
|---|
| GDP | 0.1% | -0.2% |
| Consumer price index (CPI) | 2.9% | 1.1% |
| Public sector net borrowing (PSBR) | £15.7bn | £14.8bn |
| Net debt as % of GDP | 62% | 59% |
| Unemployment | 2.5m | 2.5m |
| Unemployment % | 7.8% | 7.9% |
| Balance of Payments | -£4.7bn | -£11.4bn |
Household finances
The same signs of cautious optimism can -- for the most part -- be seen in household finances. After registering a rare fall in Q3, for instance, household debt rose slightly in Q4, from £1,457 billion to £1,459 billion.
And according to the Council of Mortgage Lenders, mortgage lending totalled £39.1 billion in the quarter, up slightly from £39 billion in the previous quarter, and a sharp contrast with normal years, where a 6% fall typically occurs between the third and fourth quarter.
That said, for 2009 as a whole, mortgage lending totalled £143.7 billion, down 43% from £253 billion in 2008, and the lowest annual total since 2000's £119.8 billion.
Average house prices rose by 1.6% in Q4 said the Nationwide, and are now up 3.4% year on year, taking the price of the typical British house to £162,116.
The slide in property values appears to have stopped -- at least for the time being. But the broader picture remains one of caution. The Nationwide's measure of consumer confidence registered an unexpected fall in the quarter, with a five point decrease in the month December to a score of 69.
The same caution is seen in the savings ratio. Close to zero -- or even briefly negative -- during the boom, the savings ratio now stands at 8.6%, up three percentage points on the quarter. With close to one in ten pounds of household income being saved rather than spent -- despite interest rates remaining at record lows -- consumers are clearly still very wary.
And with consumer expenditure consequently remaining depressed lower, the prospects of a sharp consumer-led recovery seem remote: consumer expenditure, don't forget, contributes to around 65% of GDP.
| Household finances | Q4 2009 | Q3 2009 |
|---|
| Bank rate | 0.5% | 0.5% |
| Savings ratio | 8.6% | 5.6% |
| UK personal debt | £1,459bn | £1,457bn |
| Average house price | £162,116 | £160,159 |
| Annual % change | 3.4% | -3.0% |
| Quarterly % change | 1.6% | 3.7% |
| Quarterly gross mortgage lending | £39.1bn | £39.0bn |
| Consumer confidence | 69 | 71 |
The stock market
And what of the stock market? Here -- as in Q3 -- the picture is clearer, with the FTSE 100 again posting a healthy 280 point rise over the quarter, and the FTSE All-Share recording a similar percentage gain.
So investors, at least, have positive news to cheer -- despite yields now starting to approach pre-recession levels, and with the FTSE All-Share's P/E standing at a hefty 19.
But the real issue lies in earnings and dividends, not price. So there's hope that rising earnings and dividends will redress the balance over the coming months, as more companies resume paying dividends, and fewer businesses post losses.
And on that note, accountants Ernst and Young helpfully report that only 50 companies issued profit warnings in Q4 -- the lowest level in six years.
| The UK stock market | Q4 2009 | Q3 2009 |
|---|
| FTSE 100 | 5,413 | 5,133 |
| FTSE 100 yield | 3.3% | 3.4% |
| FTSE 100 P/E | 17.8 | 16.6 |
| FTSE All Share | 2,761 | 2,635 |
| FTSE All Share yield | 3.2% | 3.3% |
| FTSE All Share P/E | 19.0 | 17.6 |
NOTE: the figures above represent comparisons between the quarterly or monthly period ending 31 December 2009 and 30 September 2009 where the relevant data is available. Where such data is not available, the data used is the latest published figure, compared with the equivalent figure for three months previously. Figures for the previous quarter may differ from those originally published here due to subsequent Office for National Statistics and Bank of England revisions.
> Last quarter's roundup
