The UK economy has had the rain, now here come the green shoots Trade Since the outset of the financial crisis, hopes have been pinned on the competitiveness of UK exports to drive growth. But initially, despite a sharp fall in the pound that made the price of UK goods cheaper abroad, exports did not improve as hoped. That was partly because demand in foreign markets was weak and partly because UK producers were banking profits rather than lowering prices to more competitive levels. However, more recently there has been an upward swing in exports. More encouraging still has been the improvement in exports to countries outside the EU, which is traditionally the UK's largest market, taking roughly half of our exports. UK exports to China are growing at an annual rate of 20pc and Ireland no longer accounts for a larger share than Brazil, Russia, India and China (the BRICs) together, as was the case just two years ago. Net trade made a positive contribution to gross domestic product (GDP) in the fourth quarter of 2011, and is expected to do the same again in the first quarter of this year. It has been driven as much by a decline in imports as by a growth in exports, suggesting that Britons are increasingly buying British. Consumer Retail sales enjoyed a surprisingly strong start to the year in January, according to official data, following a good performance over the Christmas period. The trend suggests that consumers could help navigate the economy through what is expected to be a tricky year. Anecdotal evidence from other business surveys has supported a picture of modestly-improving household finances. Supporting this has been a slowing rate of inflation. Official data on Tuesday, are expected to show that inflation eased to 3.3pc in February, from 3.6pc in January. It has been on a downward track since peaking at 5.2pc in September last year, and is expected to fall closer to the Bank's 2pc target. "Rising household spending should be a positive force behind economic growth throughout 2012," said Chris Williamson, chief economist at Markit. Accounting for almost two-thirds of national output, even a small recovery in this sector would deliver a much-needed, strong boost to the economy's fortunes. Manufacturing Manufacturing output grew in January by 0.1pc, after rebounding in December following a torrid second half of 2011. It was a mildly disappointing start to the year, but the Markit/CIPS manufacturing PMI survey, which provides the earliest indication of how the sector is performing, suggests it continued to grow in February. It is expected to expand in the first quarter overall. How the sector performs at home over the course of the year will be largely dependant upon consumer demand, at a time of tighter public sector spending. Overseas, the eurozone debt crisis is weighing on the demand for UK exports, although rising export volumes to non-EU countries are supporting growth. Falling inflation should also help manufacturers, who have been under pressure due to higher raw material prices. Public finances The Chancellor made deficit reduction his priority when the Coalition came to power, and he has insisted since then that he will not deviate from the austerity programme. He has come under renewed pressure to maintain this path, after the ratings agencies Fitch and Moody's put the UK's treasured AAA rating on negative outlook. Against this backdrop, George Osborne will reiterate on Wednesday the importance of sticking to his deficit plans. The Chancellor is likely to be cheered by the news that the Government is on course to undershoot the Office for Budget Responsibility's (OBR) forecast for £127bn of borrowing this year by about £7bn. Looking further ahead, the OBR is expected to reiterate that the Government is on course to meet its fiscal mandate, by balancing the structural budget by the end of the five-year forecast period to 2016-17, and have public sector net debt falling as a percentage of GDP by 2015-16. Business investment There may be little evidence as yet of the longed-for green shoots when it comes to business investment. However, there is so much promise, and so much hope, that companies will be under pressure to deliver. The latest data were very discouraging, with business investment contracting by 5.6pc in the final three months of last year, single-handedly dragging the economy back into negative territory. But there had been some reason for optimism before that. The previous two quarters had shown some growth and, arguably, it was the escalation of the eurozone crisis that persuaded companies to adopt a more cautious approach and to pull in their horns. The OBR expects growth of 0.7pc this year, and for 0.6pc of that to come from business investment. Companies certainly have the cash, tucking away about £70bn a year, twice the amount before the recession, and sitting on an estimated £750bn.