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Recession, what recession?

Industry experts have cast doubt on last week’s figures from the Office for National Statistics that show the UK economy is now back in recession.

According to the preliminary figures provided by the ONS, output in the UK economy in the first three months of this year contracted by 0.2 per cent. The fall is the second successive quarterly decrease after GDP shrank by 0.3 per cent in the last three months of 2011. Technical recession is defined as two successive quarters of contraction.

The ONS says output of the production industries was down by 0.4 per cent during the first quarter while construction sector output fell by 3 per cent after a 0.2 per cent fall in the previous quarter.

But some commentators believe the figures may be revised upwards in the future. The preliminary-stage GDP statistics are announced about 25 days after the quarter is concluded and take in only about 40 per cent of the total data available. There are two subsequent revisions at monthly intervals but these can be made between 18 months to two years after the initial estimate.

IHS Global Insight chief UK and European economist Howard Archer says: “Along with the Bank of England and many other analysts, we are hugely sceptical about the first-quarter GDP data showing contraction of 0.2 per cent quarter on quarter. The economy is undeniably still in a hard place but the evidence overall suggests that it managed to achieve modest expansion in the first quarter.”

Archer says the contraction was largely due to a “questionable” 3 per cent drop in construction output.

He says: “This is markedly at odds with the survey evidence on the sector coming from the purchasing managers. Overall, mild weather in the first quarter should also have helped the construction sector.”

Rathbone Unit Trust Management chief investment officer Julian Chillingworth says: “We are not dismissing the figures but will await the revision. On that basis, there is every possibility that the underlying data is stronger than suggested. At this stage, there are other numbers we would place more emphasis on, such as strong corporate profits, which seem to be telling a different story – hence the disconnect between the UK market and the GDP figures.”


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