No recovery for UK: No let up for ONS
- 25 April 2012
- From the section Business
The phrase "double-dip recession" conjures up images of roller coasters, but if the UK's recovery were a fairground ride I'd be asking for my money back.
The downward lurch in the economy in 2008-09 was certainly dramatic. But for the past 18 months the UK's national output has been broadly, and disappointingly, flat.
The 0.2% decline in GDP in the first three months of 2012 is slightly worse than many expected, and bad news for those hoping the UK would avoid falling formally back into recession. But the underlying story told by these statistics is not news to anyone: the UK's economy is bumping along the bottom and still struggling to gain momentum.
Economists at Citi point out that, excluding the war years, it's been the worst four years for the UK economy in at least 100 years: worse than what happened in the 1920s and 1930s, and worse than anything in the 1970s and 1980s.
In all those other cases, it took less than four years for the economy to get back to where it was before the downturn started. Indeed, four years after the start of recession in the early 1980s - that iconic example of a double-dip - output was 3.2% higher than its pre-recession peak.
Not this time. These figures show that the UK's national output was 4.3% lower in the first quarter of 2012 than it was in the first quarter of 2008, just before the recession started.
Are the official numbers wrong? An impressive number of independent experts, with access to a lot less information than the ONS, are today convinced that they are. A quick taste:
Kevin Daly, the chief UK economist at Goldman Sachs, says the numbers are "unbelievable". The British Chambers of Commerce calls them "unduly pessimistic". And Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club, says he reacted to the figures with "disbelief".
Goodwin continues: "The divergence between the stronger survey data and dire official output estimates is virtually unprecedented and must raise significant question marks over the quality of the data.
"The construction figures are an obvious source of bewilderment, as they have been throughout the past few years…. But it isn't just the construction data - the services data also looks highly questionable."
I don't know which is more striking, the doubts about the ONS numbers - or the supreme confidence of their critics.
Even before today, many had questioned the very weak recent numbers for construction, which are at odds with private business surveys such as the CIPS/Markit PMI. Members of the Bank of England's Monetary Policy Committee, for example, have described them as "perplexing".
For the record, construction accounts for about 7% of the economy but seems to have lowered the estimate for GDP in the first quarter by about 0.2%. That's quite a lot.
You might remember Noble Francis, economic director at the Construction Products Association, who has questioned the official construction numbers in the past.
Interestingly, this time around Dr Francis is more or less the only expert coming out on the side of the ONS. To him, it's the strong Markit/CIPS survey that is perplexing, and at odds with what many in the industry have been telling him.
He notes, for example, that the survey showed construction activity in March rising at its fastest rate in 21 months, despite new orders for construction having fallen by 14% in 2011. He says new orders are usually a decent guide to future activity.
Whatever you think about the construction data, it's worth noting that today's official estimate of a 3% fall in output in that sector in the first quarter is actually less than many expected. The big disappointment for most forecasters came, rather, from the services sector, which registered only a 0.1% rise.
So, even ignoring construction, the official estimate for growth in the first quarter would only just make it into positive territory. Surveys of services have also been more upbeat than the ONS, but they hardly point in the direction of a nascent boom.
We know today's growth figure will almost certainly be revised, one way or another. If you looked solely at the historical record, you would guess that it will be revised up.
But even this preliminary number is consistent with the message coming from official and private data, that the UK is once again relying heavily on services and consumption by households for its growth, and they are not looking very buoyant.
So, double-dip or not, the economy is not hurtling down, or soaring up. It is not doing very much at all.
Whether we will see another negative number in the second quarter will depend, among other things, on the negative impact of the extra Bank Holiday in June and (sigh) the positive effect of any bounceback in construction. But that's what you get when the big picture is so weak: a lot of erratics.
Economies, like fairground punters, are easily distracted when the main attraction falls flat.
Update 17:00: In the debate about the construction numbers, it's been brought to my attention that there are other aspects of the Markit/CIPS data which some will find even more perplexing - like the fact that it has shown construction output rising every single one of the last 15 months, and only recorded one monthly fall in output in the last 25 months. That does seem a little odd.
We've also clarified a statement made in an earlier version of this blog, that this is the worst recession/recovery cycle in 100 years, according to Citi economists.
Citi admits that they should have qualified this slightly: it's the worst in peacetime.