Posted on: 11 June 2013 by James Humphreys
The British economic outlook has been given a welcome boost
thanks to a recent revision of preliminary data on UK growth in
2012. New figures, to be confirmed later this month, suggest that
the construction industry shrank by 5% in the first quarter of 2012
rather than the 5.4% initially reported. Although only a minor
change, the new information could mean that rather than shrink into
a double-dip recession, the economy merely flat-lined in 2012.
Why is this important? What difference could this news possibly
make to the markets that have since moved on from the original
announcement? Well, quite a lot actually because this good news
could have an encouraging effect on inspiring confidence in
investors which is vital to help stimulate the economy.
Over the years, we have grown used to taking the preliminary
findings on economic growth as a guide to how the economy is
performing. The results have, in fact, always been reviewed at a
later point and we have often seen a change. None of this
mattered when a few percentage points made little difference in a
booming economy, but with the economy so finely balanced, the
preliminary results may have unintentionally shot UK markets in the
foot this time.
The preliminary results have been the media and political
battleground on the economy for so long now that very few people
know that this later review of the figures is actually common
place. But that is the world in which we now live - we want instant
news and dramatic headlines about economic turmoil.
Thankfully though, not all market commentators are like this.
Alex Brummer at The Daily Mail, for example, uses headlines such as
"Britain's disguised growth story" and dismisses terms such as
"flat-lining", "double dip" and "tax cuts for millionaires" as
political inventions. Indeed the picture is not as bad as one might
first assume, even the outgoing Governor of The Bank of England,
Sir Mervyn King, raised hopes for the future of the economy
claiming that growth will now be "stronger"- the first time he has
been able to say this since before the financial crisis.
The growth that Brummer and King talk about is being driven by
deals being made by British businesses in emerging markets such as
Brazil and parts of Asia. In addition, the retail industry, perhaps
hit the hardest by the recession, is starting to turn things around
by successfully engaging technology specialists and driving online
sales, which now make up 15% of the market.
While there is no question that the wheels are in
motion, there is more work to do. The time has come to stop
relying on hyperbole and speculation, but to take into account all
the information and statistics at hand and take a long-term look at
the markets. By doing so I think that investors will be pleasantly
surprised by what they see...