The disappearing double-dip recession

According to late May data released by the Office of National Statistics (ONS), the UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.3% between the fourth quarter of 2012 and the first quarter of 2013, unrevised from the previous publication.

In current prices, GDP was estimated to have increased by 1.6% over the same period. In the process, the UK narrowly avoided falling into an unprecedented ‘triple dip’ recession, following the ‘double dip’ at the start of 2012 and the initial – much sharper – fall in output in 2008/09.

The ONS stated that the main contributors to the increase in GDP in the latest quarter were changes in inventories, including the alignment adjustment, which increased by £2.5 billion in volume terms and household final consumption expenditure, which increased by 0.1%.

GDP in volume terms increased by 0.6% when comparing the first quarter of 2013 with the first quarter of 2012, and between the years 2011 and 2012, GDP in volume terms increased by 0.3%.

Are we right to attach so much weight to this GDP data? When the ONS releases its estimate of UK economic output, there is an understandable tendency to view its data as the final word on the performance of the economy. However, the ONS data is subject to significant revisions over time, even within each calendar month and those revisions tend to push estimated growth higher.

Each month, economists and pundits wait for the next monthly GDP figures. At the time of writing, the next publication date for the monthly ONS GDP figures is 27th June 2013.

The largest revision of GDP figures typically take place two to three years after the initial release, when the ONS reconciles its estimates with more complete information from tax returns and other sources. However, even within a single year, the average revision to the initial estimate of UK quarter-on-quarter GDP growth has been +0.25 percentage points per quarter, evidenced consistently over the last 25 years!

Over a period of one year, that’s enough to boost annual growth by 1 per cent, and during recovery periods, the boost to measured growth is often larger. Recessional dips might not be as deep or lasting as we fear.

It is possible therefore to think that we are not doing so badly as the bare GDP growth figures might suggest. The UK’s economic performance since the financial crisis might not be worse than in any previous recession since the post-Second World War demobilisation, as has previously been suggested. From the ONS evidence of the performance of employment instead, it is possible to conclude that the 2008/09 recession was actually milder than we thought and the recovery since then has been stronger than GDP figures would have us believe.

One broad interpretation of all the data evidence suggests that the UK holds a halfway house position in respect of economic performance and well-being – between the weakness of the Euro zone and the relative strength of the US. If we are still in the grip of a double-dip recession, this view suggests that there are near neighbours who are much worse off than we are!

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