|Trade figures set to fuel triple-dip recession fears
|George Osborne's plans to turn the UK into a manufacturing and exporting hub will be dealt another blow this week when official figures underline the difficulty of rebalancing the economy.
Trade data for February are expected to show that exports of key services such as finance and accountancy dropped to a seven-month low as the deficit in goods widened once again.
Industrial production, including manufacturing, will recover from January, when activity collapsed to its lowest level since 1992.
Further evidence of improvements on the high street could still help fend off another recession. The British Retail Consortium unveils its March retail sales monitor on Tuesday and is expected to show that sales rose, building on the strong start to the year.
Sales were up 3pc in January and 4.4pc in February, but are expected to be 2pc in March as the bitter weather deterred shoppers, offsetting the effect of an early Easter. A positive reading would be welcomed as further evidence that household spending is providing support to the recovery.
Victoria Clarke, an Investec economist, said: "Underlying indicators of consumer activity remain encouraging, especially since the wider measure of household consumption has recorded five consecutive increases in real terms."
But the trade figures, from the Office for National Statistics, will renew concerns about the possibility of a "triple-dip" recession, which had receded last week after a strong set of service sector indicators for March.
Samuel Tombs, from Capital Economics, said: "It is premature to conclude that the threat of a triple-dip recession has passed. We still think that there is a roughly 50pc chance that GDP fell in the first quarter."
A contraction in GDP in the three months to March would follow the 0.3pc decline in the last quarter of 2012, putting the UK into its third technical recession since 2008. The GDP figures will be released on April 25.
Trade figures have been consistently disappointing, underperforming so badly against forecasts last year that they knocked 0.9 percentage points off expected growth.
Martin Beck, at Capital Economics, said Tuesday's figures were likely to show that the small improvement in the trade deficit from £2.8bn to £2.4bn in January was "just a blip". He said: "We think the deficit will grow to around £3bn in February."
Britain's trade deficit has been caused by the large shortfall of manufactured goods exported abroad compared with imports.
The goods deficit shrank in January to £8.2bn largely due to a one-off reduction in oil imports. However, Investec believes that deficit rose to £8.8bn in February.
At the same time, exports of services such as banking have been shrinking since the crisis struck – causing the total trade deficit to widen further. The surplus in the services sector is expected to have continued to decline to £5.8bn in February, its lowest level since July 2012.
On Friday, credit rating agency Standard & Poor's cut its growth forecasts and warned that trade would remain weak as it reiterated that Britain's AAA rating was under threat and could be downgraded within the next two years.
Official numbers for manufacturing and construction this week also threaten to dent confidence in the UK's recovery prospects and prove "important in shaping triple-dip recession fears", Ms Clarke said.
Investec expects manufacturing to have grown by 0.3pc in February, paring back some of the 1.5pc decline in January.
But Ms Clarke added: "The depth of the underlying fall in manufacturing output is concerning." She said that industrial production as a whole was likely to contract for the first quarter and "act as a drag on GDP figures".
However, she expects the UK "to just about avoid the dreaded triple-dip".