Revised fourth-quarter GDP figures confirm that a recovery is under way while nominal income is growing at a rate consistent with the inflation target, arguing against any further expansion of asset purchases.
Key points:
- GDP rose by 0.3% last quarter versus an originally-estimated 0.1%, with market-sector output up by 0.4%.
- Consumer spending rose for the second consecutive quarter, by 0.4%. A further increase in consumer confidence in early 2010, to above its long-run average, suggests a continuing recovery.
- A 5.8% fall in business investment was offset by a slower rate of destocking so total spending by companies was down by 0.9%. Improving corporate liquidity should support outlays and hiring in early 2010 – vacancies rose by 11% over November-January from the prior three months.
- GDP at current market prices rose by 1.1%, or 4.5% at an annualised rate, last quarter. Gross value added at current factor cost – a measure of aggregate wages and profits – grew by 6.0% annualised. The 2% inflation target is consistent with nominal income expansion of about 4.5% per annum over the medium term.
- GDP finished the quarter strongly: a monthly proxy based on services and industrial output was 0.4% above its quarter average in December – see chart. This reduces the risk of a first-quarter relapse although January is likely to have been depressed by bad weather.
Today's news, however, may not result in a further improvement in Labour's poll ratings. Historical analysis indicates that the popularity of the governing party is sensitive to changes in retail price inflation – a further rise to about 4.5% this spring may outweigh the poll impact of better GDP.