Comment: No green shoots but the ground is fertile

Martin Flanagan
Martin Flanagan
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AS THE services industry makes up about 75 per cent of Britain’s economy, it is obviously good news that in May it grew at its fastest in over a year. But it is not just the sector’s expansion in every month of 2013 to date that is cheering.

The latest upbeat figures from Markit and the Chartered Institute of Purchasing and Supply (Cips) come after both manufacturing and construction also revealed signs of improvement earlier this week. The better news is wider spread.

Dwarfed though manufacturing and construction are by the vast services industry, they are still important contributors to GDP in themselves. The housing market is looking better as well, partly through the UK government’s Funding for Lending initiative.

As such, the better signs on the economy, while still to be greeted with caution after a chronic downturn and double-dip recession, cannot be bracketed any more in the “one swallow not making a summer” category.

Things look better on several fronts, with the performance of the strong man of the economy – services – the most welcome of all.

There are still caveats. The percentage improvements in performance are coming off low bases, particularly in the case of a battered construction sector. The economically troubled eurozone remains the biggest market for our manufacturers, and Britain is nowhere near the beginning of the end of austerity. Consumer confidence is low, £1 shops proliferate.

But economic recovery has to begin somewhere. And the confluence of data over the past few weeks is as positive as it has been for a long time.

Baby can’t be thrown out with the bathwater

TESCO will be hoping its £1 billion turnaround baby is not stillborn. Britain’s largest supermarket had a reasonable final quarter in its otherwise disastrous last financial year, suggesting a corner might have been turned. But in the first quarter of its latest 12-month period, unveiled yesterday, the downward spiral has re-emerged. Underlying sales are down 1 per cent in the group’s core UK market despite Tesco chief executive Philip Clarke throwing thousands of staff, hundreds of store refurbishments, and a splurge of price promotions at the business.

Perhaps as worrying, Tesco’s underlying sales are also down in Asia and mainland Europe. The company has quit the US, and drawn a line under its losses there.

It does not need faltering momentum elsewhere abroad when the success of a UK turnaround remains an open question. There is likely to be downwards stock market pressure on the company’s shares until any improvement in performance gains traction over three or four quarters.

Co-operative meetings will set the agenda

IT WILL be fascinating when the Treasury select committee finally gets its teeth into top management of Lloyds and the Co-op about how the mutual travelled so far towards taking over 600-odd of the former’s branches when its capital cushions for doubling its size were patently inadequate.

The Co-operative Group’s latest management changes, with former Morrisons’ finance director Richard Pennycook becoming group finance director, and ex-Alliance & Leicester boss Richard Pym becoming the banking subsidiary’s chairman, are useful appointments. But the searching questions on the Lloyds debacle remain.

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