Dismal in so many ways

No wonder they call it the dismal science. After a 2010 in which economists loudly fretted about double-dip recessions and imploding bond markets, the economy obliged by, er, growing robustly over the summer while buyers of government debt piled into gilts.

This time, with consensus predictions for the fourth-quarter GDP figures coming in at around 0.5% growth, yesterday's initial estimate from the Office for National Statistics concluded that the economy had shrunk by a shock 0.5%. As has been said by smarter people than I, it's a wonder that economists keep trying to predict the future - they can't even agree about the past.

True, reading much from the Q4 figures is particularly tricky due to the impact of heavy snowfall in December, which is estimated to have largely caused the contraction. But even without the cold snap, there is wide agreement that the UK economy has slowed markedly since the summer and, with fiscal retrenchment beginning to bite in earnest, this week's figures are another reminder that recoveries following a banking crisis are typically slow, grinding and littered with reverses.

A charitable observer might also think Chancellor George Osborne would have been well advised to have gone a good deal easier on the economic doom-peddling in the wake of the election. With deep public spending cuts looming, inflicting additional damage to consumer/business confidence with the coalition Government's rhetoric was self-defeating, whatever the political expediency of sticking the fiscal blame on the last administration.

All of which still leaves the current state of the economy unclear. Amid the headlines, the consensus view of serious economists is still that the UK is not heading back into recession, at least not yet. In theory, delayed consumption from bad weather should improve the first-quarter prospects (as appeared to happen after last winter) and, as has been noted, the fall in GDP conflicts with a number of other indicators about the domestic economy. Initial estimates are also often subject to revision and are regarded as even less reliable than normal due to the weather.

There is also the curiously backward-looking nature of GDP figures to consider, which are not unlike someone producing a graph several months after a party to tell you had a better/worse time than you thought you did.

Also in the plus camp, the general signs for the world economy have been pointing in the right direction in recent months, with Asia continuing its strong growth and the US economy seemingly emerging from a gloomy summer (though the best that can be said about the eurozone is that it avoided a disaster for a few weeks).

Given the mixed signals, it's hard to see how the gameplan changes one jot for law firm leaders. Legal Week's quarterly business confidence survey this month found that nine out of 10 respondents expect revenue growth at their firms over the next 12 months, while partner confidence has generally edged up. Currently, business levels are holding up.

And, as the recent run of LLP accounts from large City firms make clear, costs have been so comprehensively cut at most firms that it would take another sustained downturn to knock most off course (the outlook looks less rosy for firms with substantial exposure to the taxpayer).

With corporate profits and balance sheets in such good shape and a large backlog of postponed deals, the prospects remain for a modest revival in transactional work as the year progresses. But the working assumption will remain another year of trudging on steadily, intently watching that bottom line.

For more, see Partners expect 2011 to be a growth year.

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