UK GDP grew by 0.5% in last quarter

AThe Office for National Statistics official figures show the economy grew 0.5% in the first quarter of the year 10.02am: The EEF, which represents manufacturers, says, “while a double dip has been avoided the first estimate for Q1 growth is unlikely to settle nerves about the health of the recovery.” They’re not kidding – the next quarter’s data will be all over the place, because of the Bank Holiday and the Royal Wedding, so it’ll be very hard to take the temperature. 9.56am: City economists have also been reacting to the data (which was bang in line with the consensus). Many are concerned that the UK economy has effectively stagnated since last September. Hetal Mehta of Daiwa Capital Markets says that “underlying growth in the UK economy is virtually non-existent”, while Ross Walker of RBS called the data “not disastrous … a bit lacklustre”. Some economists, though, are questioning whether the construction sector really fell by 4.7%, as the ONS estimated. Philip Shaw of Investec is taking today’s preliminary numbers “with a pinch of salt”. George Buckley of Deutsche Bank is encouraged that the services sector enjoyed its best rise since the end of 2006. 9.55am: The pound has strengthened on the back of the GDP figures – up by more than half a cent at $1.6552. Little reaction on the FTSE 100, though, which is now down 15 points at 6053. 9.54am: Reaction is starting to come in – Schroders describes the figures as “very stagflationary,” Capital Economics points out that, exactly as Joe Grice, the chief statistician said, underlying growth is flat. It seems the UK is the economy that’s running to stand still. 9.52am: Strongest quarterly contribution to growth? Business services and finance: thanks, banks. Manufacturing was strong, at 1.1%, but overall production up just 0.4% because of the offset from falling energy production and mining. Some of that will be weather related, reflecting households turning off their heating in the milder new year weather; but how important is oil here, I wonder? Is our great manufacturing revival going to be cancelled out in the GDP figures because of declining North Sea production? One to investigate later … 9.49am: The press conference is breaking up now, after a couple more techy questions on the difference between arithmetical catch-up – the simple bounce back effect from the loss of GDP in the fourth quarter – and postponed output, which was lost in the fourth quarter and made up in the New Year – shopping trips put off in the Christmas snow, for example. Joe Grice explains that given that the overall figure is still just 0.5%, if there was any postponed activity, it must have been offset by falls elsewhere. 9.42am: There’s no immediate effect from the Japanese earthquake, the number-crunchers say. 9.40am: Hugh Pym from the BBC says many business organisations and surveys would have pointed to a higher figure; but Joe Grice points out, rightly, that 0.5% is bang on the City’s forecast. 9.38am: Retail was flat over the quarter, spokesman Harry Duff reminds us – though it’s felt worse for many on the high street, with profit warnings galore. Looking at the breakdown for the figures, which is sketchy at this stage, services output has actually been quite strong, at 0.9%, but not strong enough to offset a 4.7% decline in construction – which some of the analysts are sceptical about. However, the ONS insists the margin of error in these early estimates of GDP is 0.2% either way. 9.36am: “What we have is an economy that has not been declining, but has not been growing either over that period,” says Grice. Hardly the spring bounce the government had been hoping for, and puts the lie to George Osborne’s claim that the fourth quarter decline was caused solely by the snow. 9.34am: It’s 0.5% growth. And Joe Grice, ONS chief statistician, says we have an economy that has now been ‘on a plateau’ for the past three quarters, Heather Stewart writes. 9.30am: And here’s the data, hot off the Reuters terminal. UK GDP grew by 0.5% in the last quarter. Up by 1.8% on a year-on-year basis. Now over to Heather at the ONS briefing. 9.24am: Time for a quick look at the markets before 9.30am — the pound has been losing ground this morning, and is currently trading at $1.6442 against the US dollar. The FTSE 100 has lost 20 points to 6048, partly due to disappointing corporate results from Barclays and Associated British Foods this morning. 9.15am: The consensus among economists is for GDP to have expanded by around 0.5% in the quarter. However, the City’s finest minds do not have an unblemished record on such predictions (three months ago they expected growth of 0.5%, and were most surprised when the ONS reported a 0.5% contraction). In a normal quarter, 0.5% growth would be OK. But these are unusual times — that 0.5% contraction in Q4 2010 was caused by the awful wintery weather last December [growth was otherwise flat]. So growth of 0.5% last quarter would only mean that Britain had clawed back the output lost in the snow, and effectively have stagnated for six months. What would be a “good number”, then? Duncan Weldon , the economist and blogger, has written a good post looking at this question. Here’s his conclusion: I think it’s fair to say, that any number below 0.5% would be terrible, 0.6% to 1.2% would be merely bad, 1.3% to 1.7% would be reasonable (i.e. what we should expect but nothing to get excited about) and over 1.7% would be good. What this really brings home is how important it is to consider the severe disruption the quarter before when looking at tomorrow’s figure. For example if growth comes out at 1.2%, it will in reality mean that the economy has managed an average pace of growth over the past six months (ahead of the cuts). But that would also be the strongest quarter on quarter growth since 1999 and well ahead of the OBR forecast, something I’m sure certain observers would be very quick to point out. 9.08am: Today’s GDP number will be used (fairly?) as a report card on George Osborne ‘s performance as chancellor. Weak growth (or worse) will be seized on by his critics as proof that his rapid assault on the UK deficit through spending cuts and tax rises is strangling the recovery. A decent performance, though, will bolster Osborne and his allies – who are likely to argue that the drive to rebalance the UK economy is working. Osborne was given an early peek at the GDP figure yesterday. As my colleague Patrick Wintour reported , Osborne went on to brief the cabinet that “the economy was on the right course” but that “returning to balanced growth was always going to be difficult.” Labour has already argued that a weak growth figure will not be enough. Here’s Angela Eagle , the shadow chief secretary to the Treasury, last night: George Osborne’s confident declaration that the recovery is on the right track should be taken with a pinch of salt given his complacent claim last autumn that Britain was ‘out of the danger zone’. Our economy should not just be making up all the lost ground from the end of last year but growing strongly on top of that. We will need to compare growth over the last six months, since George Osborne’s spending review and VAT rise but before the bulk of the cuts have really kicked in, with growth of 1.8% over the previous six months. The Office for Budget Responsibility, which has already downgraded its forecast for 2011 three times, is predicting growth of just 0.8% in the first quarter. That would mean growth of just 0.3% over the last six months, which would be a very weak recovery indeed. Before George Osborne ripped up our plan to halve the deficit over four years growth in 2011 was forecast by the OBR to be 2.6%. We will need to see very strong figures tomorrow if the Chancellor is to get back on to that track. 9.03am: This is the first time that the ONS has done a press briefing immediately after releasing quarterly GDP data since January 2010, when Britain officially came out of recession ( here’s Heather’s live-blog of the event ). This is the agenda for this morning: 9.25am : Informal welcome to the briefing 9.30am : ONS chief economist Joe Grice will announce the 1st Quarter 2011 Preliminary Estimate for GDP 9.33am : ONS press officers will distribute hard copies of the GDP bulletin to attending journalists 9.35am : Joe Grice and a senior statistician will answer questions from the floor from attending journalists 10am : Joe Grice and a senior statistician will be available for one-to-one broadcast interviews 8.50am: Good morning, and welcome to our live coverage of the release of the UK GDP figures for the first quarter of 2011. At 9.30am we’ll learn how well the economy performed in the last three months – did Britain bounce back strongly from its disappointing contraction at the end of 2010, or only manage a limp recovery? Or did the economy continue to shrink, throwing us back into recession? My colleague Heather Stewart is embedded at the Church House Conference Centre in Westminster, where the Office for National Statistics will hold a press briefing immediately after the figures are released. I (Graeme Wearden) will bring you the City’s reaction to the data, as economists and politicians argue over the strength of the British economy. Economic growth (GDP) Economic policy George Osborne Economics Graeme Wearden Heather Stewart guardian.co.uk

Posted by on April 27, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.