Why we could see positive GDP figures out tomorrow

IT’S crunch time for the UK economy tomorrow, as the first reading of GDP data for the first quarter of 2013 is announced. There’s been plenty of hype surrounding this release, as it will either confirm that we’ve officially entered a triple-dip recession, or that the economy has managed to avoid contracting for the second quarter in a row.

It’s touch and go as to whether we’ll avoid recession or not, and there are wide-ranging estimates about exactly what figure will be posted. Market consensus is for an expansion of 0.1 per cent. Such a result is not in the slightest bit impressive, but the chancellor will still heave a huge sigh of relief. He of all people will least want to see a negative figure.

For quite some time, the UK economy has faced a distinctly uphill battle. To blame things on the weather might be considered a feeble excuse, but you only have to look at how retail sales have been affected by the cold spell Britain has suffered to understand the effect it can have. No one’s been going out to buy new clothes or garden furniture to enjoy some sunshine. And apart from the drought of winter 2011-12, there seems to have been nothing but rainfall for the past few years. At least on that front, things are looking a little better and there could be a long-awaited rebound for the high street in the weeks ahead.

Confidence in the Eurozone has also been a major issue for the UK. Only this week, data from the continent has disappointed, leaving investors with little doubt that an interest rate cut from the European Central Bank is imminent. All this comes at a time of austerity, with necessary cutbacks far from having run their course.

On the other hand, there are signs of life in the UK economy. There seems to be huge demand from investors willing to pump cash into the stock market, as the FTSE 100 (and 250 for that matter) continues to show remarkable resilience. Wealth and asset managers seem to have never had it so good, as clients have money that needs to be invested.

And according to the most recent Purchasing Managers Index data, the services sector remains firmly in expansion territory. This is encouraging as it makes up the bulk of the UK economy. But we really need to see businesses investing for what must surely be better times ahead, although unemployment figures last week didn’t make for great reading. If tomorrow’s data can provide a sufficient boost to confidence, that fall in employment may turn out to be a blip, and we could see the sorts of green shoots that are now sprouting in many gardens.

Angus Campbell is head of market analysis at Capital Spreads. You can follow him on Twitter @angusjmcampbell

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