A shallower recession

The many City economists who have been accused of having egg on their faces because they thought the initial UK third quarter growth figures looked funny, no longer look silly. The Office For National Statistics has just revised up its estimate of construction output in the third quarter from an estimate of -1.1 per cent to +2.1 per cent.

Alone, this will almost eliminate the recorded contraction in the third quarter (reducing the quarterly decline to 0.1 per cent), makes the Bank’s growth forecasts appear less outlandishly rosy, brings Britain’s official figures closer into line other indicators of the period and the European norm, and brings the eventual exit from 0.5 per cent interest rates and £200bn of quantitative easing a small step closer.

For officials and the minority of economists who insisted the initial figures were accurate and the City was whinging because it had got things wrong, this is a tad embarrassing. This is how the ONS put it this morning.

“The figures for Construction output released today are used in the calculation of the volume of Gross Domestic Product (GDP). The estimate of GDP growth for 2009 Q3 published on 25 November included an estimate of Construction output based on a forecast of -1.1 per cent growth between Q2 and Q3 2009. The next GDP release published on 22 December will include an estimate of Construction Output based on these latest Construction figures, as well as revised data for other components. ONS has assessed the impact on GDP growth of the latest Construction output data and estimates that growth in GDP between Q2 and Q3 2009 would be revised up by 0.2 percentage points. The release on 22 December will include this effect together with any other impacts arising from data received after the GDP release on 25 November.”

Howard Archer of Global Insight makes these apposite points this morning:

“So it now looks like the economy was on the brink of stabilising in the third quarter. There was widespread amazement among economists and analysts when the original national accounts data showed GDP contracting by 0.4% quarter-on-quarter in the third quarter, but suddenly we are not looking nearly so wrong in our expectations that the recession had ended then. For the record, IHS Global Insight had forecast GDP growth of 0.1% quarter-on-quarter in the third quarter.”

“Much more important than massaging economists’ ego though, the actual and likely upward revisions to the GDP data mean that the economy now looks to have been on the brink of stabilizing in the third quarter and in a better position to return to growth in the fourth quarter.”

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