Economists play down positive news

Economists have played down the importance of positive economic indicators published last week.

Unemployment fell to 8 per cent in the second quarter of 2012, according to figures released last week, down from 8.2 per cent in the first quarter, in spite of the UK’s three successive quarters of negative economic growth.

Retail sales posted an unexpected 0.3 per cent rise in July, much stronger than expected, while the Office for National Statistics also revised the June figure to a 0.8 per cent rise, from an initial 0.1 per cent.

Robin Marshall, economist at Smith & Williamson, said the employment figures may have been driven in part by temporary jobs in the tourist sector ahead of the Olympics in London.

Mr Marshall said the figures may still preclude an upward revision of the second-quarter economic growth estimate, from its 0.7 per cent decline, as well as a stronger third-quarter figure. But he warned this would be in comparison to “grim” figures from earlier in the year and did not mean there had been any fundamental shift in the health of the underlying economy.

Simon Ward, chief economist at Henderson Global Investors, said he was “more positive” on the UK’s prospects, but put this down to the strength of the country’s money supply - which tends to precede economic data by roughly six months - rather than backward-looking data.

The M4 money supply measure, which estimates the amount of money available in cash, short term bank bonds, current accounts and money market funds, increased by 1.5 per cent month on month in January, its biggest increase since April 2009. Between January and July it is estimated to have increased a further 1.3 per cent.

Mr Ward said: “The M4 growth rate in April 2009 preceded a good period for the economy, and it is a reasonable leading indicator.

“The easing announced [by the Bank of England] in July wasn’t needed because the money supply is picking up and has been since the start of the year.”