Second GDP Estimate for Q4 2009 Headlines U.K. Economic Releases for the Week Commencing 22 February

The second release of the national accounts data for the fourth quarter of 2009 on Friday is expected to revise GDP growth up modestly to 0.2% quarter-on-quarter (q/q) from the very disappointing first estimate of 0.1% q/q expansion. This would trim the year-on-year (y/y) decline in GDP in the fourth quarter to 3.1% from the currently reported 3.2%. Even so, it would still indicate that the economy crawled rather than sprinted out of recession in the fourth quarter of 2009, and it would do little to alleviate concerns that a "double dip" could occur.

The first estimate of GDP was based purely on the output side of the economy and on about 40% of the fourth-quarter data. Given that the economy appeared to be picking up at the end of the year, the later data will hopefully show improvement and lead to GDP being revised up. Already, industrial production growth in the fourth quarter has been revised up to 0.4% q/q from the 0.1% rate estimated in the first GDP release. Potentially significantly, GDP contraction in the third quarter was initially reported at 0.4% q/q, but it was then cut to 0.3% q/q in the second release and to 0.2% q/q in the third release.

Friday's national accounts release sees the first breakdown of GDP on the expenditure side of the economy. We expect the data to show that consumer spending expanded modestly, given that retail sales rose 0.7% q/q, car sales were buoyant due to the scrappage scheme, and spending on services appeared to firm to a limited extent. Government spending and investment were also likely to have been positive as fiscal stimulus measures continued to have an effect. Business investment likely continued to contract but at a much reduced rate compared with the first half of 2009 when it was slashed. Exports clearly rose in the fourth quarter, lifted by the weak pound and firmer domestic demand in key overseas markets. Nevertheless, this was countered by significantly increased imports, partly resulting from foreign cars being bought under the scrappage scheme. Consequently, despite hopes that net trade will increasingly help the U.K. recovery in 2010, it is probable that it made a negative contribution to GDP in the fourth quarter. Finally, it is likely that inventories were reduced appreciably further in the fourth quarter, but perhaps at a modestly reduced rate compared with the third quarter, thereby making a limited positive contribution to GDP.

House Prices in February and Mortgage Approvals in January

The Nationwide lender is forecasted to report during the week that house prices rose 0.4% month-on-month (m/m) in February. While this would be a 10th successive m/m increase in house prices, it would be down markedly from a rise of 1.2% in January and would be smallest increase since April 2009. Even so, it would cause the y/y increase in house prices to move into double-digit territory, reflecting the fact that house prices slumped 1.8% m/m in February 2008. Specifically, the y/y rise in house prices would climb to 11.1% in February from 8.6% in December.

Meanwhile, the British Bankers' Association (BBA) is expected to report on Tuesday that mortgage approvals for house purchases relapsed to 43,000 in January after climbing to a 26-month high of 45,897 in December, from 44,965 in November and a record low of 17,797 in November 2008 (the series started in 1997). Mortgage approvals are likely to have been hit in January by the very bad weather and by some activity being brought forward to late 2009 to beat the price threshold for stamp duty on house purchases moving down again from £175,000 to £125,000 at the start of January. Although housing market activity trended up during 2009, as it was lifted by a significant fall in house prices from their 2007 peak levels and low mortgage interest rates, it nevertheless remained muted compared with long-term norms. Despite reaching a 26-month high of 45,897 in December, mortgage approvals were still appreciably below the average monthly level of 60,314 seen since 1997.

House prices seem likely to rise further in the near term given the ongoing shortage of properties. Even so, we suspect that a modest correction in house prices will occur at some point in 2010, and they will be essentially flat over the year as a whole—assuming that more properties do come onto the market, thereby moving the supply/demand balance away from vendors toward buyers. The overall economic environment is still far from supportive for house prices (notably high and rising unemployment, and low earnings growth) while credit conditions remain pretty tight. Nevertheless, if properties remain scarce for some considerable time to come, then house prices may well continue to rise. This will increase the risk, though, that an eventual correction in house prices will be appreciable.

Consumer Confidence in February

The GfK/NOP consumer confidence index (out overnight Thursday/Friday) is expected to have been stable in February after rebounding modestly in January following a significant relapse at the end of 2009. The upside for consumer confidence continues to be limited by concerns over the strength and sustainability of the recovery. While consumers may have been cheered to a limited extent that the economy finally crawled out of recession in the fourth quarter of 2009, growth in the final months of that year was less than anticipated and there are ongoing fears that the U.K. economy could suffer a "double dip." Specifically, we expect the GfK/NOP consumer confidence index to have remained at -17 in February after rising to this level in January from -19 in December. The index had previously relapsed to -19 in December from a 21-month high of -13 in October. Confidence is still clearly brittle given that the long-term average for the consumer confidence index is -8.

CBI Distributive Trades Survey for January

The Confederation of British Industry (CBI)'s distributive trades survey for February (Thursday) is forecasted to show that the balance of retailers reporting that sales were up y/y recovered to +2% in February after slumping to a five-month low of -8% in January from +13% in both December and November. Sales are expected to have recovered to a limited extent in February after being slammed in January by a triple whammy of very bad weather, value-added tax (VAT) rising up from 15.0% to 17.5%, and apparent reduced discounting by retailers in the post-Christmas clearance sales.

Even so, February's balance is expected to remain significantly below the balances seen at the end of 2009. The suspicion remains that the upside for consumer spending will be limited in 2010 by a number of factors, most notably high unemployment, low earnings growth, the VAT hike, and a general desire/need for consumers to improve their personal finances.

By Howard Archer

23 Feb - BBA Loans for House Purchases, January (000s): 43.0
25 Feb - CBI Distributive Trades Reported Volume of Sales, February: +2%
25 Feb - Business Investment, Fourth Quarter 2009 (Quarter-on-Quarter): -0.8%
25 Feb - Business Investment, Fourth Quarter 2009 (Year-on-Year): -19.2%
26 Feb - GDP, Fourth Quarter 2009 (Quarter-on-Quarter): +0.2%
26 Feb - GDP, Fourth Quarter 2009 (Year-on-Year): -3.1%
26 Feb - GfK Consumer Confidence, February: -17
During Week - Nationwide House Prices, February (Month-on-Month): +0.4%
During Week - Nationwide House Prices, February (Year-on-Year): +11.1%