June 2008 GDP Estimates

Our latest estimate suggests that the growth rate in the three months ending in June is 0.2% after 0.1% in the three months to May. The difference between the May and June figures is not of importance and is accentuated by rounding. Our analysis assumes that retail sales have fallen back in June after the May blip and also that growth in public sector services is slower than in the first quarter of the year. 

These data confirm the general impression of weakness in the British economy, but, although quarterly falls in output are possible in the near future, it remains most unlikely that output in 2008 will be lower than in 2007. We remain of the view that, despite these data, inflationary pressures and the risk of rising inflationary expectations mean that there is no room to reduce interest rates, and that an increase may be needed.

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.