BRITISH policymakers breathed a deep sigh of relief yesterday when the Office for National Statistics (ONS) confirmed that first quarter UK GDP growth had been revised upwards to 0.3 per cent thanks to strong industrial production and business activity.
The boost to the growth figure had been expected since the ONS released extremely strong industrial production data for the first quarter two weeks ago. The breakdown showed that industrial production rose by 1.2 per cent on the previous three months, its biggest quarterly rise since early 2006.
Some economists even suggested that we could see further upwards revisions – services growth was left unchanged at a suspiciously weak 0.2 per cent and could be pushed higher.
The GDP figures were also boosted by a 0.5 per cent increase in government spending. With the Lib-Con government announcing cut-backs in spending, this is unlikely to provide as positive a contribution in the future.
“The official data and survey results are now more in synch, and some upward revision was expected in light of the strong manufacturing data for March,” said Hetal Mehta, senior economic advisor to the Ernst & Young ITEM Club.
However, economists cautioned that the 0.1 percentage point rise in GDP brought little sign of the rebalancing of the economy which will be vital if a solid recovery is to be maintained once the impending fiscal squeeze kicks in.
Lai Wah Co, head of economic analysis at the CBI, said that while faster growth is expected in the second quarter, more telling will be the growth in the latter half of this year when households and businesses will have a better idea about the government’s plans for fiscal consolidation.
Mehta added: “Further ahead, downside risks to economic growth remain, not least the extent of the fiscal tightening we will see implemented in the emergency Budget next month.”