The economic patient is stirring

If you glance at the breakdown for growth forecasts for the UK this year you will see what an economic system looks like as it starts to climb back out of recession.

If we achieve 1.5% GDP growth this year, it will have been driven mainly by public sector growth - likely to be around 1.7% - with a small contribution by private sector spending - around 0.7% - and some offsetting reductions in investment: investment spending has collapsed over the last two years and appears to be declining at a rate of 2.4% this year.   Oddly, while exports are expected to grow pretty well this year on the back of a more competitive exchange rate (forecasts suggest an expansion of some 4.5%), these are likely to be matched by higher imports so that there is only a very small net contribution to growth from trade.

The most recent estimated figures for UK GDP growth in Q1 make two issues clear.  Firstly, to use the

What next for the Bank of England?

As the MPC meets on Thursday they are faced by a dilemma: whether to believe the latest GDP data telling us the UK is still in recession or the growing amount of data that we are past the worst and at the start of a long uphill climb towards growth.

The record of success in using the early survey data to indicate the growth of the economy is pretty poor. Remember last quarter the first release data had us contracting by nearly 1% while the later figures showed a contraction of some 0.6%. At a time when the statistics are telling us one thing I think we should believe what we are seeing: that we are close to zero - if not mildly positive - growth and that the MPC should hold back from extensive injections of liquidity into the system for fear of starting a credit led bout of inflation in due course.

For sure any signs really are fragile, but they are there. Whether it is a slowdown in corporate insolvencies or growing retail numbers, we are seeing indications that the markets are starting to re-structure and turn to thoughts of growth.