Muted response to double-dip news

Traders and analysts yesterday shrugged off news that the UK economy had fallen back into recession amid signs of an upturn in manufacturing activity in recent weeks.

Experts claimed the underlying picture remained one of growth despite official figures revealing gross domestic product (GDP) had contracted for two consecutive quarters – triggering the second recession in three years.

Their optimism was fuelled by a CBI report that showed sentiment among manufacturers had risen for the first time in a year. According to the business group’s latest industrial trends snapshots for Scotland and the UK as a whole, orders and output volumes increased in the three months to April and are expected to continue rising in the coming quarter.

In a note entitled Recession? What recession? investment bank BNP Paribas said the CBI report would provide “an offset to the terrible ‘UK back in recession’ headlines”.

David Tinsley, UK analyst at the French bank, said: “On one reading, the UK is in a double-dip recession. On another, the manufacturing sector is poised to lead the economy to sunlit uplands of sustainable growth. The truth, probably, lies somewhere in between.”

Paul Mumford, senior investment manager at Cavendish Asset Management, stressed recent company results have been “reasonable to good, and don’t reflect a double-dip scenario”.

He said: “The bigger picture reveals an economy bouncing along on a level plane, rather than a significant downward trajectory.”

Yesterday’s first-quarter GDP reading is an early estimate and is issued before more than half of the data has been gathered. Some economists are hopeful the initial figure will be revised upwards in the coming months.

A breakdown of the data showed the powerhouse services sector, which accounts for almost three-quarters of the British economy, creeping back to shallow growth in the quarter.

But the industrial production sector declined 0.4 per cent, with manufacturing down 0.1 per cent after a 0.7 per cent decline in the closing quarter of 2011.

The construction sector suffered a 3 per cent slump in the first quarter, its biggest contraction since the first quarter of 2009, although the findings contradict recent industry surveys for both the manufacturing and construction sectors.

Howard Archer, chief UK economist at IHS Global Insight, described the CBI survey as “relatively healthy overall” but acknowledged that the sector – some 15 per cent of the economy – faced “significant challenges”.

“The April CBI industrial survey provides substance to the view that the economy is seeing underlying growth, even if it is far from buoyant,” he added.

Scottish Building Federation (SBF) chief executive Michael Levack rounded on the news of a sharp fall in construction output, saying the GDP statistics made for “grim reading”.

He said: “It comes as no surprise to SBF, confirming what our members are telling us about the situation on the ground across Scotland. We fear this recession period may be with us for some time to come.”

There will be two revisions of the GDP figures over the coming two months.