UK recession less deep than thought

 

Joe Grice of the ONS says construction and manufacturing output fell less than thought

The UK economy shrank by less than previously thought between April and June, official figures have shown.

Revised data from the Office for National Statistics (ONS) show the economy contracted by 0.5% during the quarter, less than the 0.7% it announced last month.

The ONS said output in the construction sector was higher than it had previously estimated.

Many economists had expected the figures to show a smaller contraction.

The original estimate of a 0.7% contraction, published in July, was greeted with some scepticism by a number of experts and by some industries that claimed they had seen little sign of such a serious economic downturn.

"The production sector was not quite as bad [as we thought]; similarly the construction sector," Joe Grice from the ONS told the BBC.

He said each accounted for a 0.1% revision to the original 0.7% estimate.

The ONS had already said that output from the construction sector fell by 3.9% between April and June compared with the previous quarter, compared with an earlier forecast of a 5.2% drop.

Analysis

So things don't look quite so bad, but the economy was still contracting in the second quarter. Revisions to industrial production and construction, as widely predicted, reduced the scale of the overall fall in output.

Given the Bank of England believes that the extra Bank Holiday in June reduced growth by 0.5%, it could be argued that, after accounting for that, the economy was flat between April and June.

The first estimate suggested that British GDP was lower than it was when the coalition took office in 2010. Today's revision now reveals that output was actually flat over that period - some consolation for the chancellor.

But the underlying picture is unchanged - the economy is stagnant and its not clear where growth is going to come from.

GDP figures show the value of all the goods and services produced in the economy. The ONS always refines its GDP calculations as more data becomes available and changes to the original estimates happen on a regular basis.

Output 'stagnating'

Mr Grice said the revision did not change the overall picture of the UK economy, which has been "broadly flat over the past two years".

Economists agreed with this assessment.

"The revision is very small in the big picture and means that output is still more than 4% below its pre-recession peak," said Vicky Redwood at Capital Economics.

"Remember that the extra bank holiday probably knocked about 0.5% off GDP. But even so, underlying output is just stagnating."

A number of analysts believe GDP will rebound in the current quarter, partly due to the impact of the Olympic games. A rise in consumer and government spending, as well as the boost from ticket sales that will be recorded in the July to September quarter, should lift growth, they say.

'Difficult process'

The UK economy is in recession having contracted for the past three quarters.

Some observers have blamed the government's severe spending cuts for undermining growth.

Labour's Chris Leslie: "These are fairly minor changes to what is a pretty grim story"

Labour's shadow Treasury minister Chris Leslie told the BBC that action, not talking, was needed to stimulate growth. He said the government should introduce a temporary cut in VAT to help consumers and a levy on bankers' bonuses to help fund jobs programmes for the young.

A Treasury spokesperson said: "Britain is dealing with some very deep-rooted problems at home and a very serious debt crisis abroad, and that is why the healing of the economy is proving to be a slow and difficult process.

"Compared to two years ago the deficit is down, inflation is down, and there are more private sector jobs."

Some have questioned why the economy is shrinking when unemployment is falling.

Mr Grice said one reason for this anomaly was the move to part-time work, which had also affected the "productive capacity" of the economy. He said this was a very similar situation to many other economies outside the UK.

 

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  • rate this
    +2

    Comment number 421.

    This is the worst depression in history and there are no quick fixes.Tighten your belt, pay off your debt and sit back and ride it out.I've studied past depressions and they are actually good for us and needed every 50 years to adjust debt buildup from the last several reccessions.Our combined debt is so huge that it will take 12 to15 years to pay back enough to get back to normal.

  • rate this
    +1

    Comment number 262.

    I just want a government that can spend within it's means, so that my children are left a stable and sustainable economy. Why is it that we have been in deficit for so long? I can't borrow year on year to run our household finances, so why is it OK for the nation? I think we have to take a lot of pain now otherwise we just pass on the problem to the next generation, and that's cowardly.

  • rate this
    +16

    Comment number 213.

    I buy British foodstuff from local suppliers when possible, I would love to own another British car, but unfortunately the factory is now in China. any purchases I make I try to buy British. Our glorious leaders however don't care that our manufacturing base is almost now existent, financial services going to India/China, and I am sick of hearing about London supporting the UK.

  • rate this
    +1

    Comment number 198.

    GDP means nothing when prices vary so much and comparisons are unrealistic.

    e.g. China makes 14.5 million cars per year.
    UK makes 1.4 million per year.

    the value of sales is about the same.

    Continue throughout the entire sales output and UK is a very, very minor manufacturer, the problem is high cost low volume luxury goods is what people avoid in times of hardship, hence we buy from China.

  • rate this
    +30

    Comment number 197.

    Oh what a reflief ...

    the almost disastrous figures are now only just very terrible.

    No need to worry then everyone

 

Comments 5 of 10

 

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