UK recovery on track - but not yet racing ahead

 

It is good news - excellent news, if you're the Chancellor. There were few City forecasters expecting a growth figure for the first quarter of 0.3%, and plenty expecting worse. But in the words of the CBI chief John Cridland, it's "nothing to write home about".

Cooler heads are entitled to point out that our national output shrank by the same amount in the previous three months before. In a sense, Thursday's figure simply reverses that fall.

It's true that the decline in the fourth quarter of 2012 was almost entirely due to the unwinding of the Olympics effect over the summer. But the perception that the recovery does not have a lot of momentum behind it is not just down to special factors like the weather or the Olympics.

Even with Thursday's growth news, the UK's GDP is only 0.6% bigger than it was a year ago. The Office for National Statistics says it has been "broadly flat" for the past 18 months - and our economy is still 2.6% smaller than it was before the start of the recession five years ago.

Just as troubling, the manufacturing sector is smaller than it was at the start of 2013 - let alone 2008. The figures show production in this part of the economy shrank by 0.3% in the first quarter - and is 0.3% smaller than when the Chancellor took office.

'True' growth

The services sector did the work, as usual, and does not seem to have been badly hit by the poor weather.

At the Chelmsford garden centre I visited for my piece for Thursday evening's TV bulletins, the owner, James Richmond, told me that business had fallen off a lot in the cold winds of March. But he would probably not be surprised to hear that services companies like his have expanded overall. Footfall at his centre is higher than last year, even though spending per head is slightly down.

The construction sector was clearly hit hard by the weather. Simon Ward, chief economist at Henderson, points out that overall GDP would have risen by 0.48% if construction output had been stable in the first three months of the year, as you might have expected on the basis of rising orders figures at the end of 2012.

He reckons that the quarterly GDP figure, on average, has been revised up by 0.15% since the start of 2009 (that's comparing the first estimate with the latest version). Taking both considerations into account, he says, "true" growth may have been 0.5% or more.

That is not what many others are saying. But it does now seem quite likely that the ONS will revise away last year's "double dip" recession. The change in GDP in the last quarter of 2011 was recently revised from minus 0.4% to minus 0.1%.

Pre-crisis

The official figure for the quarter after that - the first three months of 2012 - is also now minus 0.1%. And that is a rounding up of the actual figure, which shows output falling by just 0.07%. So, an upward revision of less than 0.05% of that first quarter figure would be enough to eliminate last year's recession.

So much for past history. What about the future?

If we carry on growing at this pace, the economy would grow by around 1.2% - easily beating the Office for Budget Responsibility's forecast for 2013 for growth of 0.6%. But as recently as December, that forecast was, err... 1.2%. And even that would not take the economy back to where it was pre-crisis.

City forecasters have their own views on whether the economy can continue growing at this rate, with some markedly less optimistic than Henderson's Simon Ward.

Looking at other official data and private business surveys, the consensus forecast before this number came out was for growth of just 0.1%. So it's fair to say that before Thursday morning's GDP data, most forecasters thought the recovery had less momentum behind it than these official figures suggest - not more.

So it is good news. We can say, now, that plans for a modest recovery in 2013 remain on track. But no sign, yet, that we are about to race ahead.

 
Stephanie Flanders, Economics editor Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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