The OECD is wrong, at least for now

Last week the OECD predicted that the UK economy would record a 0.1% decline in GDP for Q1.  This would mean that the economy had fallen into the dreaded "double dip" recession,  since GDP fell by 0.3% (originally estimated at 0.2%) in Q4/2011.  The OECD also opined that the UK would experience more sluggish growth in the medium term than most of its peers.

That medium-term outlook may well turn out to be true.  There is no sign that the government is ready to slacken the pace of fiscal tightening, and ultra-loose monetary policy seems to be doing little more than allowing the economy to stay afloat.  That's nothing to be sniffed at, of course.  Although unemployment in the UK has been rising in recent months, it has stayed a long way below the dire levels that some experts predicted when the financial crisis hit.  Even now it stands far short of the appalling rates evident elsewhere in Europe: Spain, for example, where overall joblessness is now 24%, and the rate for young people is massively higher than that.

On a more positive note, however, it's very likely that the OECD's forecast of a fall in GDP for Q1 will turn out to be wrong.  A number of commentators have noted that the surge in fuel sales last week, amid strike-driven fears of a supply shortage, will have boosted consumer spending for the entire quarter.  Some experts have gone so far as to suggest that the government actually provoked the fuel panic in order to achieve exactly that outcome, in order to make sure the OECD's forecast was wrong.  This seems very far-fetched, if only because it implies a level of cunning far beyond anything the government has displayed in recent times.

Other, more concrete indicators also point to positive growth for Q1.  The Markit/CIPS purchasing managers' index for March showed its strongest reading for 10 months, at 52.1 (where any reading above 50 implies expansion of the sector).  Separately,  a joint study by the CBI and the accountancy firm PwC showed that the financial services sector expanded in Q1 for the eighth straight quarter. Add in the fact that retail sales started the quarter on a strong note (even though there was a setback in February), and it's hard to see why the OECD is so pessimistic about overall GDP (official data for which will be released on April 25).

After Q1, things may get tougher for a while.  Bank of England Gov. King has already predicted that GDP may fall slightly in Q2, because of the extra public holiday to mark the Queen's diamond jubilee.  By the same logic, Q3 might also be tough, given that much of London will be off limits to all sane people for a month or so while the Olympics are in town.  And, of course, there's still the threat of a fuel drivers' strike. Panic buying of petrol may have boosted consumer spending last week, but if the pumps really did run dry, even for a short while, the impact on the economy would be very severe.