April 2010 GDP estimates

WEAK GROWTH CONTINUES

Embargo until 15.00 hours on 8th April 2010

Our monthly estimates of GDP suggest that output grew by 0.4 per cent in the three months ending in March after a similar figure for the three months ending in February. These data reflect a dip in output in January which we associate the cold weather. Given this dip in January and the fact that the growth rate was achieved despite the rise in the VAT rate, the underlying rate of growth of the economy is probably greater than 0.4 per cent. We now estimate that output is 1.1 per cent higher than at the end of the recession which we currently place in September 2009. Nevertheless, after two years of depression, output is still 5.4% lower than it was in early 2008 and the growth rate is still lower than the trend rate of growth of potential output, so the output gap is still increasing.

The National Institute interprets the term “recession” to mean a period when output is falling or receding, while “depression” is a period when output is depressed below its previous peak. Thus, unless output turns down again, the recession is over, while the period of depression is likely to continue for some time. We do not expect output to pass its peak in early 2008 until 2012.

Our track record in producing early estimates of GDP suggests that our projection for the most recent three-month period has a standard error of 0.1-0.2% point when compared to the first estimate produced by the Office for National Statistics. This comparison can be made only for complete calendar quarters. Outside calendar quarters the figures are less reliable than this and they are also likely to be less accurate in the current disturbed economic circumstances.

A paper describing the methodology used to produce the data was published in the February 2005 volume of the Economic Journal. From April until October 2006 our estimates were computed using the Index of Services published by ONS. However this monthly series shows considerable volatility which has caused us some problems in estimating GDP. From our November 2006 press release we have therefore reverted to using a model of private services output based on indicator variables. This means that, while all our figures for calendar quarters are fully coherent with ONS data, our estimates of monthly private service output are not. The series can be thought of as indicating the underlying value of the ONS series.

For more information please telephone Martin Weale on 020 7654 1945.