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UK recovery stutters in February

The UK's economic recovery has stuttered since the start of 2011, according to a raft of recent data which will step up the pressure on Chancellor George Osborne's imminent Budget.

UK retail sales were down 0.4% year-on-year in February, according to the British Retail Consortium (BRC) and latest figures released by the British Chambers of Commerce (BCC) predict lower GDP growth in 2011.

On a total basis, sales were 1.1% higher in February, which represents the slowest growth in almost two years. This compares to a 4.5% increase in February 2010.

Food sales improved after a weaker January, but non-food sales fell sharply as consumers' underlying uncertainty about jobs and incomes resurfaced said the BRC.

Stephen Robertson, director general of the BRC, said: "Apart from a bit of help from half-term for some retailers, February's sales were weak. Other than the negative sales figures last April (caused by the year-to-year movement of Easter), this February's 1.1% total sales growth is the poorest since May 2009 - even poorer when the impact of the VAT rise on inflation is taken into account."

He added: "Against this background of deteriorating sales, the BRC has written to the chancellor urging him to use his budget to support retail's essential contribution to jobs and growth by avoiding new burdens and removing existing ones."

The chancellor's Budget is due to be announced at 12.30pm on 23 March and he has said it will be "unashamedly pro-growth".

Indeed, today's announcement from the BCC suggests the Chancellor could have his work cut out for him. In its new quarterly Economic Forecast the BCC predicted lower 2011 GDP growth of 1.4%, from its 1.9% prediction in December.

It said the downward revision is mainly due to the unexpected fall in GDP in the fourth quarter of 2010, but added that the likelihood of an increase in interest rates in the second quarter of this year would also lead to lower growth.

On a more positive note, the BCC predicted improved medium term prospects with UK GDP growth of 2.3% in 2012, up from its previous prediction of 2.1%.

David Frost, director general of the BCC, said: "The Budget must commit to explicit policies that will help firms thrive. This is the time for the government to deliver on its promises and ensure businesses can invest, export and create jobs. The government is right to persevere with implementing its tough deficit-cutting plan and we expect the private sector to absorb these measures, given the right supportive policies in the Budget.

"This would allow growth to strengthen towards the end of this year and into 2012."

But last week's Purchase Managers' Indices for manufacturing, construction and services showed the private sector is yet to truly pick up the slack of the public sector in terms of job creation. While the manufacturing sector saw a pick-up in employment in February, it only accounts for 9% of jobs in the UK and hiring in the other two sectors wasn't so encouraging.

Part of Osborne's strategy, which was announced at the Conservative Party's spring conference this weekend, is to create a new generation of "enterprise zones" to help "places in our land with great potential, but which need that extra push from government and local communities working together".

Details of the tax reliefs offered to these areas are expected to follow in the Budget announcement.

Source : Esther Armstrong - Interactive Investor

08 March 2011
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