Britain’s businesses are reporting a spring surge in order books, boosting hopes that the economy may finally be recovering after flirting with recession late last year.
After official figures showing the UK performed slightly more strongly than originally thought towards the end of 2022, the Institute of Directors said there had been an improvement in demand, confidence, hiring and investment intentions in March.
The IoD said its survey of more than 900 firms – which showed a pick up in growth across all sectors – suggested the economy would confound predictions in the budget two weeks ago that output would fall in the first three months of 2023.
Kitty Ussher, chief economist at the Institute of Directors, said: “The data coming from our members is strongly suggestive of growth across all sectors in recent weeks. In particular, the strengthening of order books since the end of last year points to an economy performing better in the first quarter than was anticipated as recently as the March budget.”
Half of all firms (50%) reported in March that their order books were healthier than at the end of 2022, with 22% saying they were weaker. The balance of +28 was up from +8 in November 2022 and -2 in September 2022. The IoD said net positive scores are recorded in all parts of the economy, including consumer-facing sectors and manufacturing.
Ussher said: “While this is undoubtedly good news, strong demand also means that it may take longer than many forecasters currently expect for inflation to come within sight of the Bank of England’s target any time soon.” Britain’s annual inflation rate rose from 10.1% to 10.4% in February, while figures for the 20-country eurozone for March released on Friday showed a fall from 8.5% to 6.9%.
The Office for National Statistics confirmed on Friday the economy narrowly avoided being in technical recession – two successive quarters of negative growth – in the second half of 2022.
The ONS said it now thought the economy shrank by 0.1% rather than 0.2% between July and September and grew by 0.1% in the final quarter rather than remaining flat.
Despite fears that a combination of high inflation, strikes and financial turmoil would lead to falling output, builders, manufacturers and the telecoms sector all recorded faster growth than initially estimated.
Government help with energy bills underpinned consumer spending in the fourth quarter but business investment – which had previously been estimated to have grown by almost 5% – fell slightly.
Despite the revisions, ONS data shows the economy has been broadly flat since early 2022, growing by 0.1% in each of the second and fourth quarters and contracting by 0.1% in the third quarter. The economy remains smaller than it was in late 2019 before the onset of the Covid-19 pandemic, although by 0.6% rather than the 0.8% previously estimated.
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Darren Morgan, an ONS director of economic statistics, said: “The economy performed a little more strongly in the latter half of last year than previously estimated, with later data showing telecommunications, construction and manufacturing all faring better than initially thought in the latest quarter.
“Households saved more in the last quarter, with their finances boosted by the government’s energy bill support scheme.”
Analysts said the economy would continue to struggle in the months ahead against a backdrop of rising borrowing costs and the end of government support for energy bills.
Ruth Gregory, of Capital Economics, said: “The upward revision to real GDP growth in Q3 and Q4 of last year suggests that high inflation took a slightly smaller toll on the economy than we previously thought. But with around two-thirds of the drag on real activity from higher rates yet to be felt, we still think the economy will slip into a recession this year.”
Gabriella Dickens, of Pantheon Macroeconomics, said she was pencilling in declines of 0.1% in both of the first two quarters of 2023. “The economy likely will continue to flatline in the first half of this year,” she said.
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