Tomorrow's second reading of the Q4 GDP figure has been widely expected to show that the UK emerged from recession at a quicker pace than the 0.1% originally shown in the preliminary reading.

Although analysts weren't expected a dramatic change in the number, a reading of around 0.2% or 0.3% would have given them more comfort for the outlook of the recovery.

However, the likelihood of tomorrow's second reading showing an upwards revision was put in doubt today by news from the Office of National Statistics (ONS) showing business investment falling sharply in the final quarter of the year. According to the Preliminary reading of business investment in Q4 2009, investment fell 5.8%, compared to a fall of 1.8% in Q3 2009.

Again a health warning must be placed on these figures as they are only preliminary readings and therefore are highly likely to be changed.

For more information: http://www.statistics.gov.uk/pdfdir/bi0210.pdf

There remains a good possibility that GDP will be revised up tomorrow. Nevertheless these figures suggest that business was not yet confident enough to spend money in the final months of 2009 and were hoarding their cash in anticipation of things continuing to be bumpy in 2010.

The CIPS Purchase Managers Index (PMI) was released today, recording a figure of 50.8 in July, up from 47.4 in the previous month. With the PMI index rising above 50 the manufacturing sector is now showing signs that it is starting to grow again, although at a very modest pace.

The manufacturing sector joins the services sector in returning to growth, which recorded results above 50 in both May and June and is forecast to expand again in July.

This should be seen as a positive sign that the economy is now past the worst of the economic downturn and is slowly returning to growth. However, at just above the 50 mark the data is not showing a rapid rebound in activity but a very modest increase in activity. Given that the economy has so far shrunk nearly 6% since the end of the first quarter in 2008, it will take either much stronger growth than this or a very long time indeed to return the economy to where it was in early 2008.

Recent data has also revealed that employment expectations in the manufacturing sector are starting to improve. This is not to say that employment in the sector is expected to grow in coming months, but the rate at which it is falling is set to slow.

Manufacturing in the UK has lost around 150,000 jobs since the start of this economic downturn, but it should be remembered that the sector is in a process of long-term decline. The sector lost jobs throughout the boom years of this decade and since 1980 has seen total employment fall by over 40%.

On the whole, today’s result should be seen as a positive but tentative sign that the economy is starting to improve. The economic environment remains fragile and a smooth transition to normal conditions is unlikely. Nevertheless, should this trend continue, the economic outlook could be better than many economists have been forecasting.

It seems highly likely that the US Federal Reserve will cut interest rates in half today to 0.5%.

As base rates approach zero the Fed is rapidly running out of conventional measures to stimulate the economy. Therefore expect to see some forms of quantitative easing and large fiscal stimuli throughout 2009.

For more information on quantitative easing

Managing the US economy is going to be extremely difficult over the coming six months. Without a well functioning financial system, few of the conventional measures are helping to get the economy going again.

The Fed and the US Treasury will have to work together first and foremost in getting to the route of the US economic downturn. Whether this be housing, the banking and financial system, consumer confidence etc etc. Large scale, throw your money at it type solutions are not going to work well...they will be costly and wasteful.

If the broken system can be fixed and the economy taught to stand on its own two feet, then the seeds will be sewn for economic recovery.

Its going to be a long, hard and complicated journey.

It has been a couple of months since the Lehman Brothers and the subsequent fall out. Over the last few months it seems that things in the financial markets have stabilised and because of global government actions we shouldn't see too many more major financial institutions collapsing. I'm sure some firms will get into trouble but for now I don't think another Lehman's will happen - particularly as Citi was rescued.

Sadly the downturn in the wider economy is still in full force and likely to get worse before it gets better. Nevertheless, with interest rate cuts, falling prices, government fiscal stimuli and the early indications of stability in the financial markets could we be reaching a bottom?

Well it seems possible that we might be reaching the bottom in financial markets. Equity prices seem to be very undervalued and presenting great opportunities to those with capital to invest.

Sadly the real economy lags the stock market and will continue to weaken over the next six months before reaching anything like a bottom. In countries like the UK the bottom is likely to take much longer.

As the real economy falters this will have a negative impact upon financial markets once more, limiting the extent of the rebound, and keeping us bouncing along the bottom for some time yet.

Being full of seasonal joy I am optimistic that this is the light at the end of the tunnel that we've all been looking for...I just hope that that light isn't a train coming in the opposite direction.