Martin Flanagan: Reasons to be cheerful but don’t get complacent

It adds to previous signs that the UK economy is picking up, albeit not rooting up any trees. It also comes on the back of four consecutive months of growth in the UK manufacturing sector, thrown into sharp relief by the embattled state of manufacturing in the eurozone.

Add in the good numbers recently relating to construction activity – about 8 per cent of the economy – and the cumulative evidence is that we did not enter technical double-dip recession in the first quarter of 2012 after the slight contraction in the final quarter of 2011.

As each new batch of more positive data comes out, it fuels scepticism about the contention of the Organisation for Economic Co-operation and Development (OECD) that the UK economy contracted about 0.1 per cent in the first three months of this year.

Given the dominance of services in our economy, many City economists are revising their numbers amid a growing feeling that GDP may actually have risen between 0.2 and 0.4 per cent in the past few months.

Pedestrian growth, yes, still well below trend; but at least moving in the right direction – away from an economy either in recession or stagnant.

There are still risks the recovery may be derailed. Manufacturing has proved remarkably resilient to the financial and economic troubles in our biggest export market, the eurozone. But the massive injection of capital by the European Central Bank has provided breathing space for dealing with the problems across the Channel, not resolved them.

We also have the high oil price keeping input costs at British factories under pressure, and geo-political unpredictable elements – most notably the nuclear standoff with Iran.

However, even with these caveats, the latest services performance is a shot in the arm. Orders and output are both on the up. It is likely to all but seal what already seemed a foregone conclusion – that the Bank of England will keep interest rates at their historic low of 0.5 per cent at the conclusion of its two-day meeting today.

It also makes it less likely that the Old Lady of Threadneedle Street will pump more money into buying government gilts – and, therefore, boost the economy – through its quantitative easing (QE) programme. Current inflation levels made further QE at this stage unlikely anyway. One City economist said yesterday as the better news on the state of the economy continued to percolate through: “The news this week has been as good as anyone could have hoped realistically.” He’s right.

Euro critics forced into pragmatic backing

IT HAS been noted elsewhere, but it bears repeating: those who opposed European monetary union as doctrinaire arrogance riding for a fall as long as there was no accompanying fiscal union are entitled to feel vindicated. The euro project as conceived was like an Airfix kit without the glue.

But there’s a pungent irony. Many of those same euro critics now argue that the single currency must be bailed out at all costs or there will be a reignited banking crisis that plunges us all into not just a double-dip recession, but a full-blown depression.

In short, systemic risk trumps schadenfreude.

French have the muscle to carry the day

MAYBE French utility giant GDF Suez thought it could get away with a cheese-paring bid approach for the 30 per cent of British energy group International Power it does not own because majority shareholders do not need to overpay.

The rejection from International Power’s independent non-executive directors yesterday shows, as often, that this is far from a given.

Think of what now seems that faraway universe when News Corp tried unsuccessfully to get full control at BSkyB, where it already had 39 per cent of the shares, with a low bid approach. Again there was rejection. followed by, er, events…

One suspects that at International Power we are only talking an increase of 10p or so for the French to carry the day.

So, allez-y, GDF Suez. Just a few centimes more.