Our monthly estimates of GDP suggest that output grew by 0.6 per cent in the three months ending in July after growth of 0.2 per cent in the three months ending in June. Special factors continue to exert their influence. The drop in output in April, due to these special factors, flatters the rate of growth in the three months to July. Underlying growth is significantly weaker than the headline number reported. The level of GDP is now only 0.6 per cent higher than a year ago. Financial turmoil in the UK’s major trading partners highlights the precarious nature of a UK recovery that relies on export growth rather than domestic consumption.
Special factors listed by the Office for National Statistics include the additional bank holiday for the Royal Wedding and supply chain disruptions due to the Japanese tsunami.
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 2013.
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 Simon Kirby on 020 7654 1916.