OUTPUT 4% OFF PEAK
Our latest GDP figures show that output fell by 1.8% in the three months ending in February after a fall of 1.7% in the three months ending in January. The level of economic activity has now fallen back to that in August 2006 and is 4.3% below its peak of April 2008. The economy is experiencing a combination of a sharp reduction in stock levels and very weak demand for manufactured goods. The contraction is likely to slow only when businesses have reduced their stock holdings to desired levels. It is possible that increased availability of bank credit may make it easier for businesses to finance stocks and thus slow the rate of contraction. The policy of quantitative easing may help in this respect, but it is a pity that it is not focused more on supporting the market for corporate debt since that would help businesses directly.
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.
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.