The economy recovered in the first quarter of 2011 -- but only back to where it was last summer.
So, we're back to where we were. That, in short, is the message revealed by today's release of the quarterly GDP estimate for the first quarter (Q1) of 2011.
The figure in question: 0.5% growth, neatly reversing the 0.5% decline recorded in the last quarter of 2010.
In one sense, it's good news. A second quarter of negative GDP growth would have met the conditions necessary for a recession to be declared, and the impact of a 'double dip' on confidence levels would surely have prolonged what is already a fairly precarious recovery.
Even so, the news from the Office for National Statistics that GDP has returned to level it reached in Q3 2010 has a more troubling aspect. The apparent confirmation that the previous quarter's dip was largely down to December's heavy snowfall means that we've escaped recession only to encounter stagflation.
"It seems that when we strip out the 'snow effect', the economy has been suffering from stagflation over the past six months -- high inflation, and no growth in real terms," notes Azad Zangana, European economist at Schroders (LSE: SDR).
Jobs, inflation, and public sector borrowing
And, broadly speaking, that's certainly the picture seen in most other economic indicators.
Unemployment, for instance, fell by a tiny 17,000 -- a modest improvement, certainly, but leaving the headline figure unchanged at 2.5 million. As a percentage of the workforce, the level is little changed since rising sharply in the first half of 2009.
Public sector debt, too, has remained largely static. Rising just £14 billion during the quarter, public sector borrowing -- excluding financial interventions -- stands at just short of 60% of GDP.
A year ago, the comparable figure was £760 billion, equivalent to 53% of GDP, illustrating just how much the public sector finances continued to worsen during a period when the economy was technically out of recession.
Better news admittedly comes on the trade front. Although the balance of payments worsened during the quarter to an outflow of £10.5 billion, trade in physical goods finally exhibited the long-awaited recovery, with record exports helping to narrow the UK's trade deficit with the rest of the world to just £2.4 billion.
Inflation? At 4%, it's precisely twice the trigger point that is supposed to impel the Governor of the Bank of England to write an explanatory letter to the Chancellor.
But with the economy so frail, and tax rises and public sector job cuts yet to bite -- not to mention high energy bills and food costs -- the Monetary Policy Committee is understandably nervous about raising rates too soon.
| Macroeconomic indicators | Q1 2011 | Q4 2010 |
|---|
| GDP growth | 0.5% | -0.5% |
| Consumer price index (CPI) | 4.0% | 3.7% |
| Public sector net debt | £903bn | £889bn |
| Net debt as % of GDP | 59.9% | 59.3% |
| Unemployment | 2.5m | 2.5m |
| Unemployment % | 7.8% | 7.9% |
| Balance of Payments | -£10.5bn | -£8.7bn |
| Balance of Payments % of GDP | -2.9% | -2.4% |
Household finances
Once again, the base rate remained at its historic 360-year low for another quarter.
And that is just about the only positive piece of news that Britain's battered consumers received during a quarter that was notable for an unrelenting tide of gloom.
No wonder, then, that the household savings ratio rocketed up almost a tenth to 5.4%, or that consumer confidence plunged in February to a record low of 39 -- although a modest recovery at quarter-end saw the index inch up to 44.
No wonder, too, that gross mortgage lending fell sharply over the quarter, declining 12.5% to £30.1 billion.
And against such a backdrop, it's not surprising that the price of the average house fell to £162,379 -- a nominal drop of almost a thousand pounds, equivalent to an annual fall of 0.3%, although seasonal adjustments showed a 1% quarter-on-quarter improvement.
| Household finances | Q1 2011 | Q4 2010 |
|---|
| Base rate | 0.5% | 0.5% |
| Savings ratio | 5.4% | 5.0% |
| UK personal debt | £1.45trn | £1.46trn |
| Average house price | £162,379 | £163,244 |
| Annual % change | -0.3% | 0.7% |
| Quarterly % change | 1.0% | -1.3% |
| Quarterly gross mortgage lending | £30.1bn | £34.4bn |
| Consumer confidence | 44 | 53 |
The stock market
And what of the stock market? Again, despite oscillations over the period, the quarter-end levels are almost identical, with the FTSE 100 just nine points up.
A more revealing story is seen in the FTSE's P/E, with the market's rating increased to 13.7 from its level of 12.1 at the end of December. With the price component of the ratio remaining static, the rise points to concerns over future earnings growth.
How well-founded are such worries? We'll have to wait and see. One thing, though, is clear: despite the fact that around two-thirds of the FTSE 100's earnings come from overseas, a moribund UK GDP growth rate won't help.
| The UK stock market | Q1 2011 | Q4 2010 |
|---|
| FTSE 100 | 5,909 | 5,900 |
| FTSE 100 yield | 3.1% | 3.0% |
| FTSE 100 P/E | 13.7 | 12.1 |
| FTSE All Share | 3,068 | 3,063 |
| FTSE All Share yield | 3.0% | 2.9% |
| FTSE All Share P/E | 14.2 | 12.9 |
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