GDP revisited

Official data are expected to confirm that Britain’s recovery from the worst recession in generations has been far stronger than previously thought.

GDP revisions to be published by the ONS on 30 September will reveal significantly stronger growth in recent years, perhaps going some way to explain the productivity conundrum that has confounded so many smarties for so long.

The ONS has already indicated the scale of revisions up to the fourth quarter of 2013, and this Wednesday’s release of national accounts for the second quarter will extend the process to the present. The numbers currently available show that the recovery in 2010 was weaker than previously thought, but significantly stronger from 2011 to 2013. GDP is now estimated to have risen by a cumulative 6.0% between the fourth quarters of 2010 and 2013, equivalent to 2.0% at an annualised rate, versus a prior 4.2%, or 1.4% annualised.

Figures are set to show UK growth in 2011 was a rosy 2% at the height of the Eurozone’s battles – up from 1.6% in previous estimates, while growth in 2012 is likely to be revised up to 1.2% from 0.7%, and in 2013 from 1.7% to 2.2% — with GDP overtaking its pre-recession peak in Q2 2013, one quarter earlier than previously thought. The consensus at the time was for a sub-1% outcome, with much talk most unforgettably from the IMF of the risk of a recession.

Wednesday’s release may extend the upward revisions to growth since Q4 2013 — but even if the quarterly path since then remains unchanged, the upgrades to earlier data imply that the GDP increase in 2014 will be raised to 3.3%.

the story so far

the story so far

The revisions reflect a combination of methodological changes and new data.

Just to remind ourselves, the headline three months ago read “Building growth: UK economy grew 3% not 2.8% in 2014 as statistics body changes the way it measures construction.” According to the ONS, the biggest impact has come from measures to improve coverage of small business activity and to capture income concealed by tax evasion. The revisions could affect financial balances in some sectors i.e. income minus spending: notably the household sector is currently estimated to be running a deficit, where net lending was -£5.4bn, equivalent to 1.7% of available income in Q1 2015.

The revisions are unlikely to alter MPC thinking — the direction, if not the scale, was expected and the MPC will likely attribute most of the upgrade to better supply-side performance, implying little change to its estimate of slack. They are, however, potentially more significant for fiscal policy, since they may result in the OBR raising its estimate of trend GDP growth, in turn boosting revenue forecasts — which will doubtless be of great cheer to UK Chancellor George Osborne ahead of his spending review and the Autumn Statement due in November, as the scale of spending cuts needed to meet targets may be smaller than the OBR judged at the time of the July Budget.

Nevertheless, the revised data could give rise to speculation of an earlier interest rate rise — which would add spice to the anticipation of next week’s MPC meeting and minutes — but most conomists are of the opinion that the BoE will stand pat until the spring of next year.

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