UK's recovery is 'false dawn'
Head of John Lewis retail chain warns that optimism after strong reading in key PMI service-sector survey may prove short-lived
Britain's emergence from the deepest recession since the war was a "false dawn," and paying the costs of the crisis would put the brakes on recovery, John Lewis's chairman, Charlie Mayfield, warned today.
As a key survey of the services sector suggested a strong bounce last month, after activity was depressed by the snowy weather in January, Mayfield told reporters at a retail conference in London that there would be no return to the heady days of the consumer boom.
John Lewis will unveil a strong set of results next week but its chief executive, Charlie Mayfield, warned that there would be no return to a consumer boom. Photograph: David Moir/Reuters
The upmarket retailer had a successful Christmas, and Mayfield said it would report a "strong set" of annual results next week. But he warned that growing optimism about the outlook was misplaced.
"I think we're in a bit of a false dawn, I'm afraid to say ... Getting out of the crisis has cost an eye-watering amount of money and we simply haven't started to pay the price for that," he said. "Everyone wants to think it's going to return to how it was two years ago. It's not going to happen."
His comments came after analysts seized on news that the monthly purchasing managers index (PMI), compiled by the Chartered Institute of Purchasing and Supply to measure service-sector activity, jumped to 58.4 in February from 54.5 in January – the strongest reading in more than three years.
With services accounting for more than three-quarters of gross domestic product (GDP), City experts said the upbeat reading was welcome news, after a string of poor data suggested the blizzards put the economy into the deep freeze in January.
"It's a staggering rise, which suggests the services sector in the UK is in rude health," said David Page at Investec. The survey helped to boost the pound on the foreign exchanges. By the end of the day, sterling was up more than 1% against the dollar, at $1.51.
Vicky Redwood of Capital Economics said that, together with strong growth in manufacturing and construction last month, the services outturn pointed to robust overall growth of 1% in the first three months of 2010. "At the very least, the survey will ease concerns that the economy may have fallen back into recession this quarter," she said.
A positive quarter of growth in the first three months of the year would come as an immense relief to Downing Street. Statisticians are due to publish their first assessment of GDP for the first quarter in late April, likely to be the middle of a general election campaign, and news of a "double dip" could rock Labour's claim to have nursed the economy back to health.
The details of the PMI report were also encouraging: a sub-index measuring new business increased to 57.5 from 53.4, the highest since September 2007. Job prospects also improved, with the employment reading the highest since the start of the recession in spring 2008.
But Colin Ellis, an economist at Daiwa Capital Markets Europe, cautioned against reading too much into one month's data, pointing out that PMI surveys had pointed to a rapid recovery in 2009 which never materialised. "The bottom line is that the PMIs have not been a particularly good guide to activity during the recession so far," Ellis said. The latest figures for the final quarter of last year show that GDP growth was 0.3% – stronger than first thought, but still half the economy's long-term average rate.
The Bank of England's nine-member monetary policy committee will complete its monthly interest rate-setting meeting tomorrow. Few City experts expect any change from its stance of "pausing" quantitative easing at £200bn, and keeping borrowing costs on hold at a record low of 0.5%.
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