Britain’s recovery looks fragile

Britain may not see a rapid recovery from the weak growth seen in the first quarter. Recent economic data have been disappointing – the manufacturing sector picked up more slowly than expected in May, and surveys of the services sector have also disappointed.

Meanwhile, annual house-price growth dropped to 4.6% last month, the first sub-5% reading since 2013, according to Nationwide. However, mortgage approvals rose by over 6,000 in April, said the Bank of England, the biggest monthly gain in over six years. Consumer confidence remains near 13-year highs.

What the commentators said

Recent weakness in manufacturing and construction has spread to services, said Markit’s Chris Williamson. The latest surveys point to quarterly growth of 0.4%, not much of an improvement on the 0.3% seen in the first quarter. This “effectively kills off the chances of any imminent hiking of interest rates”.

A rate rise this year seems unlikely, agreed Capital Economics. But while the recovery is clearly still “a bit fragile”, a “sustained slowdown” is unlikely. The main driver should be consumption, which accounts for around 60% of GDP. The labour market is still strengthening, earnings growth should keep climbing, and inflation has disappeared for now, bolstering real incomes.

Real household spending is on track to grow by 3% in 2015, the most in ten years. So with sterling strength squeezing manufacturers, Britain is once again relying on household spending to keep the show on the road, said Alex Brummer in the Daily Mail.

Chancellor George Osborne’s vision of a UK “carried aloft by the march of the makers” looks more and more like “a Budget 2011 hallucination”, said Alistair Osborne in The Times. Back then, manufacturing comprised 12.8% of GDP; now it’s 10%. That’s not a march – it’s “a limp”. And it’s domestic demand for consumer goods that is propping the sector up.

Of course, we are an economy dominated by sevices. But perhaps Osborne will let us know in next month’s Budget where the high-tech exporters, crucial to the rebalancing he’s always banging on about, have gone.