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Manufacturing leads ‘modest rebound’ in economic growth

28 April 2011

Welcome news that the 2011 first quarter UK GDP grew by 0.5% - meaning that we managed to miss the much feared ‘double-dip’ recession by the skin of our teeth - must be tempered by the fact that the UK economy remains, for all intents and purposes, stagnant. The 2011 Q1 rise, effectively cancelling out the 0.5% decline in 2010 Q4, has been met with mixed industry reaction.

CBI director-general, John Cridland conceded that the figures showed a modest rebound in economic growth, recouping the loss in output caused by the bad weather in the fourth quarter of last year. And while we should be encouraged by the result, he says, recovery remains slow and sluggish, with continued contraction of the construction sector having a marked effect on overall growth.

David Kern, chief economist at the British Chambers of Commerce (BCC), thought the figures were mixed and well below the Office of Budget Responsibility’s (OBR’s) prediction that the economy would grow by 0.8% in the quarter. On the basis of these figures, the BCC believes that in 2011 as a whole GDP is likely to grow by 1.4%, rather short of the OBR’s expectation of a 1.7% increase.

Setting aside the failing fortunes of the construction sector, Mr Kern says there are some positive features in the ONS figures, particularly the 1.1% growth in manufacturing and the 0.9% increase in services. But in his view the economy’s overall performance is still mediocre, with total economic activity only just returning to the levels seen in the third quarter of 2010.

The BCC calls on the government to persevere with policies that support growth, and to remove the obstacles that prevent businesses from creating jobs and exporting. For the Monetary Policy Committee, Mr Kern believes these figures reinforce the case for postponing increases in interest rates until much later in the year. “It is crucial to avoid any measures that could derail the recovery,” he says.

The Engineering Employers’ Federation (EEF) chief economist, Lee Hopley acknowledged that the recovery in manufacturing output had maintained its momentum in the first three months of 2011. “The sector has now posted six consecutive quarters of robust expansion, while the rest of the economy only just made up the ground lost at the end of last year,” she says. “While a double dip has been avoided, the first estimate for Q1 growth is unlikely to settle nerves about the health of the recovery as all sectors of the economy face continuing uncertainties.”

Meanwhile, the Forum of Private Business has called for a ‘two pronged’ approach to boost economic growth in the UK; namely, swift business-friendly policies from the government, and an increase in business and consumer confidence. Forum chief executive Phil Orford says the increase of 0.5% is as good as we might have hoped for and it’s reassuring to know we haven’t returned to recession. However, it doesn’t indicate any great surge of economic activity, he says, and it won’t dramatically increase confidence in the small business sector.

“If we want to see some real growth next quarter, we need some radical and immediate measures from the government which will tangibly improve conditions for smaller businesses on the ground. If smaller companies are to foster a genuine and meaningful recovery, they need to be freed from costly and time-consuming red tape, benefit from a simpler and more sympathetic tax system, and see the soaring costs of essentials like fuel and utilities tackled.

“This in turn should help to bring about the second thing we need to see – a significant increase in business and consumer confidence. Of course, the UK economy isn’t performing brilliantly at present but it could be a lot worse and maintaining confidence is essential if we want to help smaller businesses drive economic recovery.”

Take me to your leader
We’re not the only country to be feeling the pinch. US federal and state funding cutbacks are also having an impact on the world’s largest economy. The latest casualty is the University of California at Berkeley’s Hat Creek Radio Observatory where the Allen Telescope Array (ATA) has been quietly scanning the universe for intelligent life since 2007. In an email sent out to ATA stakeholders late last month, the Search for Extraterrestrial Intelligence (SETI) Institute chief executive, Tom Pierson reported Berkeley’s decision to reduce Hat Creek operations to a “hibernation state” as funding is slashed to around a tenth of its former level.

The SETI Institute is now working flat out to ensure the ATA comes back on line as soon as possible. The timing couldn’t be worse for the researchers as they are poised to use the ATA to examine the bounty of smaller planetary systems starting to be revealed by NASA’s Kepler Mission. Pierson is now urging his team to generate greater public participation in the SETI programme, making the science much less vulnerable to government budget cycles. If you are interested in this esoteric research programme, you can follow it at setiQuest.org

Les Hunt
Editor


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