Martin Flanagan: Two pieces of upbeat data do not an economic summer make

Published on Wednesday 13 April 2011 00:01

THE economic optimists are in danger of becoming spoilt. On Tuesday the market was surprised by a sizeable fall in inflation in March to 4 per cent from 4.5 per cent in February.

Some believe this puts back the likelihood of an interest rate rise from the Bank of England to high summer at the earliest, compared with earlier speculation that a hike could come as early as May.

This was followed yesterday by unexpected good news on unemployment, with the numbers of jobless across the UK falling 17,000 to 2.48 million in the three months to February.

In Scotland, unemployment fell by 7,000 to 219,000 during the period.

That was in line with recent surveys showing that both manufacturing and services firms plan more hirings.

However, even with these two pieces of good news the economy is far from off the hook. The Scottish Chambers of Commerce (SCC) business survey for the first quarter of 2011 says rising cost pressures continue to threaten the tentative recovery.

The survey, produced in conjunction with the University of Strathclyde's Fraser of Allander Institute, says Scottish firms in Q1 were under the cosh from rising costs in materials, transport and other areas.

This is unsurprising given the steady ascent in energy and commodity prices, in everything from wheat and plastic to steel and cotton.

However, in the weak state of the economy the SCC indicates Scottish businesses are finding it difficult to pass these cost rises on and profit margins are being squeezed as a result.

In short, for every piece of good economic news there remain plenty of pressures on the negative side of the ledger. The SCC says that the construction industry has seen activity bottom out but that it is premature to talk of a recovery.

Quite so, particularly as construction is in the frontline of government spending cuts, from motorways to social housing. And the retail sector's bombed-out state becomes more apparent with every week.

Inflation and employment data going in the right direction are welcome, but they are still short-term snapshots of a fluid situation.

As the SCC says, the overall economic picture remains murky and fragile.

Horizons widen for UK exports - but keep it in perspective

THE Prime Minister will be pleased.

David Cameron has, in the past, publicly bemoaned the fact that our exports to some of the fastest-growing nations in the world - such as China, Brazil and Russia - are so weak compared with the numbers of goods shifted to mature markets.

But the latest data shows that, for the first time since official records began, the European Union (EU) has been surpassed as the biggest destination for British exports.

In February our manufacturers sold more goods outside the EU - 12.58 billion - than inside the 27-nation bloc - 12.48bn.

Gratifyingly for the Prime Minister, who led a trade delegation to the Far East last year, sales to China hit 777 million.

That now makes the world's most populous country Britain's eighth biggest export market. But despite the clear sign that the world beyond the EU seems to be opening up to our exporters, perspective is needed.

We imported 2.4bn of goods from China in February, so we are still running a massive trade deficit with that country.

Still, particularly with the severe financial problems and bailouts being faced in some eurozone nations, it is good news that our geographic horizon for exports shows signs of widening.

Nature v nurture: economy sometimes puts the boot in

JD Sports has avoided the pitfalls of some of its rivals such as JJB Sports, and to a lesser extent Sports Direct, with a far more fashion-conscious offering.

But, even though JD has just recorded its seventh consecutive year of growth, it too says it is "extremely cautious" about the outlook for the current year.

With the financial pressures facing much of its core market of teenagers and twenty-somethings, that caution is probably prudent.

JD has a more upmarket offering, with better profit margins, and the rise in VAT is also likely to add to its perceived status as a pricy alternative in difficult times.

It is a well-run company now coming up against a severely strapped consumer. This does not mean JD will go into reverse but the pace of growth may well slacken.

A successful format can only take a retailer so far. Then the environment kicks in.