Revised GDP figures in line with city expectations

Friday, 24 August 2012 02:11

By Ben Salisbury

The UK economy contracted by 0.5 per cent, rather than the 0.7 per cent previously thought, according to the second estimate of GDP, published by the Office for National Statistics (ONS) today.

The revised figures show that over the past two years the economy has remained flat with no growth at all.

Last month, the first estimate of GDP (Gross Domestic Product) from April to June was released showing that the economy had shrunk by 0.7 per cent, cementing the UK’s double-dip recession. GDP shows the total value of all goods and services produced in the economy.

The first estimate of GDP only included the output side of the figures. Today’s figures also include the supply side and give a better indication of the overall performance of the economy.

The revised figures show a 0.9 per cent fall in industrial production and the manufacturing sector

The revision was in line with city analysts prediction that there would be an improvement with the contraction revised down to 0.5 per cent for the quarter.

"These revisions were bang in line with what we had expected," said Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club.

"We still expect a substantial rebound in Q3 as the impact of the extra bank holiday in Q2 unwinds and, with a minor boost likely to come from hosting the Olympics as well, we should see growth more than offset any losses in Q2."

The first estimate led to doubts about the validity of the figures because the level of the downturn suggested by the ONS did not match industry leaders anecdotal evidence of what was happening in reality. Many felt the economic situation was not as bad as the figures showed.

Presenting the initial estimate on July 25th, Joe Grice, the Office for National Statistic’s chief economist said: “The margins of uncertainty of the preliminary estimate are therefore a little bit greater than usual because of these specific and unavoidable uncertainties. The scope for future revisions is a little bit greater than normal.

“The underlying performance of the economy was probably somewhat better than the headline figure of minus 0.7 percent would suggest."

This view had some support from unemployment figures, which in the last quarter has shown the number of people in jobs has been rising.

The original GDP estimate suggested that there was a big drop in output in the industrial and construction sectors and that GDP had also been impacted by the extra bank holiday due to the Queen’s Diamond Jubilee.

However, the ONS issued revised figures from the construction sector that showed the downturn in the construction sector was 33 per cent less than first thought. Output between April and June fell by 3.9 per cent, not 5.2 per cent as first estimated. Today's revised figures confirmed that output in the construction sector fell by 3.9 per cent.

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