Surveys of business have been universally bleak. The Bank of England and the Organisation for Economic Cooperation and Development have cut their growth forecasts. Warnings from multinational companies about the consequences of a no-deal Brexit have been coming thick and fast.
Little wonder, then, that the financial markets feared the worst from the last heap of official data before Wednesday’s spring statement from Philip Hammond. The feeling was that the chancellor would give his latest update against the backdrop of an economy losing further momentum after a sluggish end to 2018.
In the end, the figures were not nearly as bad as the surveys had suggested. Output was up 0.5% in January, the sharpest one-month rise for more than two years, with increases in the three big sectors: services, manufacturing and construction. Spending in the shops was strong and the UK’s annual growth rate picked up from 1% to 1.4%. While not exactly booming, Hammond will be able to tell MPs that the UK is growing faster than all the other G7 countries bar the US and Canada.
Of course, there are plenty of caveats. The stronger than expected performance in January did little more than reverse a 0.4% drop in gross domestic product in December, and the quarterly growth rate – a better guide to the underlying trend – remained unchanged at 0.2%. It is always a mistake to read too much into a single month’s data, and manufacturing and construction were both down over the quarter.
The service sector, by contrast, grew by 0.5% in the three months to January, in large part because the doom and gloom that appears to have descended over company boardrooms does not seem to have filtered down to the shop floor. Wages are rising faster than prices, and that means consumers have more money in their pockets.
While it is possible that consumers became more cautious as the Brexit deadline neared, there is not much sign that they have done so yet. Nor was there a lot of evidence that companies have been stockpiling goods.
It would hardly be a surprise if the data for February and March is less strong than that for January but as things stand growth in the first quarter is on track to pick up to 0.3% or 0.4%. That’s still modest, but, in the circumstances, Hammond would certainly take that.
