jka on economics UK

pro.manchester economics review Q2 - what colour are the eyes of a Yeti?

The pro.manchester economics review for the second quarter of 2011 is available on line. Rates are expected to remain on hold until the Autumn. The economy is expected to grow by 2% in 2011 but any base rate rise will be postponed into early Autumn. Growth will be a tough grind in 2011.

Through last year, I was suggesting that growth would be above trend, inflation would remain stubbornly high and interest rates would have to rise to offset the inflation threat and mitigate the impact of import prices, particularly dollar denominated commodity prices.

Since then, inflation has been well above target, commodity prices have been rising but the growth of the economy has been below trend. 

The preliminary estimate for growth in the first quarter of the year was 0.5% quarter on quarter and 1.8% year on year. This was just enough for Ed Balls to claim the economy is flat lining and and for George Osborne to hail growth of sorts. For the year as a whole, the economy is expected to grow by 1.7% according to consensus and our own forecast is revised down to 2.1% in this review. As for rates, the GDP figure will do little to convince the doves on the MPC to fly the Governors coop and vote for a rate rise. The earliest estimate is for a modest rate rise in the early Autumn.

The risks to the GDP figure are to the down side but the second quarter GDP growth will be of key concern. Capital Economics, NIESR and The Chamber of Commerce are flagging growth of just 1.4%.

A full copy of the pro.manchester economics review “Grinding Out Growth” is available as a free download. JKA

Check out : "What colour are the eyes of the Yeti? Trogs and the Yeti" page 20.

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

GDP growth up by 1.8% in the first quarter - it’s life George but not as we need it.

GDP growth in the first quarter was up by 0.5% compared to the final quarter of 2010 and up by 1.8% compared to a year ago. The preliminary estimate is in line with consensus forecasts. Ed Balls, Shadow Chancellor, said: “These figures show an economy that has flatlined since the autumn.” On the other hand, the Chancellor and the Prime Minister are able to claim both the 0.5% and the 1.8% year on year growth represent a positive growth out turn.

Manufacturing grew year on year by just under 5% and construction despite the down turn in the quarterly figure was up by 3.4%. Distribution, hotels and restaurants increased by 1.5% year on year, transport, storage and communications were up by 1.5% as were business services and finance. Government and other services increased by 1.4%.

It is unlikely the figures will change views on the monetary policy committee and an interest rate rise, which at one stage could have taken place as early as May is now likely to feature in early Autumn.

For the year as a whole, the consensus forecast is for growth of around 1.7%. Assuming the economy grows quarter on quarter in Q2 by a further 0.5%, the rate of change year on year would fall to 1.2%. This would be a worrying development and signal a slow down which may be difficult to reverse without a plan B for the Chancellor. It is growth and evidence of life but not as we need it for this stage in the recovery. 

Sign up today and "subscribe" for e-mail notification of updates.

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.