PMI surveys set to point to recovery

Julian Harris
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WORSE than expected GDP figures for the fourth quarter of 2010 shocked economists when released at the end of last week. But many expect the latest business surveys, out this week, to show a strong rebound in the UK economy.

“Business surveys suggests that the economy is growing at a steady pace,” said Michael Saunders of Citigroup, “with inflation lifted by strong cost pressures”.

Purchasing managers’ index (PMI) figures showed a sharp uptick in January, with the UK’s largest sector – services – rebounding to an eight month high.

The PMI data showed strong growth across the board, particularly in manufacturing, and even in a construction sector hit by government spending cuts.

“Survey evidence for February will offer key evidence as to whether the bounce back in activity in January from December’s severe weather-related hit is being sustained,” commented Howard Archer of IHS Global Insight.

“We expect GDP to rebound by 0.8 per cent in the first quarter of 2011 as some of the activity lost to December’s severe weather is made up,” Archer added.

In the final three months of last year, the economy shrank by 0.6 per cent, the Office for National Statistics (ONS) said. Heavy snow is blamed for a half per cent contraction, yet the economy would have shrunk by 0.1 per cent anyway, its figures suggested.

“Given the strength of the business survey data, which continued to report reasonably strong growth in quarter four, the GDP number raises some significant questions over the relationship between the surveys and the official data,” said Andrew Goodwin of the Ernst and Young Item Club.

“Our hunch is that the reality is closer to what the business surveys are telling us,” he added.