Recent UK economic news has been better than feared, consistent with the view here that a recovery in real money expansion would support demand and activity.

Exhibit one is today’s retail sales report, showing a 3.2% annualised rise in volumes in the three months to November from the previous three months – the fastest such growth rate since August 2010.
Retail sales, admittedly, are often a poor guide to overall household spending. Car registrations and house-hunting activity, however, provide supporting evidence of consumer resilience.

Net exports should contribute positively to the current-quarter GDP change, despite Eurozone weakness, judging from the October trade report.

A fall in GDP, therefore, would seem to require a sizeable decline in corporate spending on top of reduced government outlays. Strong corporate liquidity ex. the real estate sector, however, should serve to restrain cut-backs.

Labour market indicators are weakening but not at a pace suggesting economic contraction. Claimant-count unemployment rose by 19,000 in the three months to November versus 36,000 in the three months to May 2008 – the middle month of the first quarter of the last recession. (The claimant measure was boosted between late 2008 and mid 2011 by lone parents moving from income support to the job seekers’ allowance.)

Output expectations in the CBI December industrial survey, meanwhile, recovered to a seasonally-adjusted level of zero, questioning forecasts of an imminent large decline in manufacturing output.