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June 30, 2014 11:47 am
Large revisions to Britain’s national accounts this September will show the recession was shallower than previously thought and output has already passed its pre-recession peak.
In a briefing paper on Monday calculating the effects of the revisions on growth rates up to 2009, the Office for National Statistics said that it now thought the 2009 downturn was more than 1 percentage point smaller than the existing vintage of data shows.
With the recession thought to be shallower, the subsequent growth of the economy suggests gross domestic product passed its 2008 peak in the first quarter of this year.
The ONS is in the middle of an exercise to reveal the effects of once-in-a-decade revisions to the national accounts that will sweep away existing British economic history.
The statistics office is aiming to publish all of the individual effects of the revisions – caused by the normal annual revisions cycle and a move to bring the national accounts into line with the latest international conventions – before September 30, when it will reveal the full picture.
It has already shown that the level of national income will rise roughly 5 per cent as it introduces the new European System of Accounts 2010 that include research and development and weapons in output for the first time. Changes to the way the charity sector, drug use and prostitution are measured will also add to GDP.
The paper published on Monday referred to the growth of GDP rather than the level. The ONS said that the average growth rate of the economy between 1997 and 2009 would remain unaltered at 2.2 per cent, but the pattern of that growth would change with large alterations made in individual years.
For 1999, 2001 and 2009 growth will be revised higher by more than 0.5 percentage points while for 2000, 2004 and 2007 at least an equivalent amount will be subtracted from growth.
The largest change occurs in 2009 where the existing economic contraction of 5.2 per cent will be moderated to a fall of 4.1 per cent. With the trough of the recession less deep, the subsequent growth implies that GDP passed the pre-recession peak in the first quarter of the year.
That date might well change, however, because the ONS has yet to revise the growth figures for 2010, 2011 and 2012. There are already indications in the published figures that there might be substantial upward revisions to growth in 2012 because the preliminary measures of spending growth in that year are already much stronger than the published GDP figures.
Any upward revisions to GDP growth after 2008 will help to resolve some of the unusually weak productivity growth that has been recorded, although the Bank of England does not think that it is plausible to believe that more than 2 percentage points of the 16 percentage point shortfall in productivity will be eliminated by data revisions.
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Rob Wood of Berenberg Bank said “the recession was still huge even if it has now gone from perhaps 10 to 9.9 on the Richter scale,” adding that “changes to growth from 2010 onwards, which the statistics office will publish over the next two months, could be more significant than today’s changes to pre-2010 data.”
Of the other changes to the national accounts, one of the largest is a complete overhaul of the measurement of final salary pensions. This will nearly double the UK’s 5 per cent household savings ratio, making households look more frugal than previously thought and giving companies smaller piles of saved cash.
The revisions came as Goldman Sachs has lifted its forecasts for the UK’s economic growth rate to a buoyant 3.4 per cent this year.
The US investment bank’s analysts have raised their forecast for 2014 from 3 per cent to 3.4 per cent and from 2.7 per cent to 3 per cent next year, after the “persistent” strength of the UK’s economic indicators over the past year.
That would bring down the unemployment rate to 6 per cent in 2015 – an election year – and 5.8 per cent in 2016.
However, while Goldman expects inflation to remain subdued, robust growth will probably compel the Bank of England to lift rates sooner than expected – with the first increase pencilled in for early next year.
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