IT wasn’t the definitive result that was required to prove that the recovery has legs – but yesterday’s first-quarter growth estimates from the Office for National Statistics (ONS) were encouraging nevertheless. They finally laid to rest the spectre of a double-dip recession and confirmed that the UK is undergoing a bumpy, muted yet very real private-sector led recovery.
First, a caveat: Britain’s GDP statistics constantly get revised; on average, they tend to be hiked substantially during the months and years that follow the early releases. Which bits of the economy are doing well and which are doing badly also keep getting changed, often beyond all recognition, by the ONS, which sometimes almost seems to enjoy its power to endlessly rewrite the UK’s economic history.
On the face of it, growth of 0.5 per cent in the first-quarter, only just erasing the snow-affected 0.5 per cent decline of the last three months of 2010, was deeply disappointing. But the underlying growth of the economy was almost certainly stronger than the top-line figures suggest. The combined output of the services and industrial sectors, accounting for 93 per cent of GDP, rose by a healthy 0.8 per cent in the first-quarter, more than recouping a 0.4 per cent fourth-quarter loss. March was especially good, which also bodes well for the second-quarter.
So how come the economy didn’t do better? The main reason is that construction output supposedly collapsed (there was also a seasonal hit to oil and gas and utilities). Yet ever since the ONS introduced new monthly output data for the construction sector last year, its estimates of its performance have been all over the place. If the ONS were to be believed, construction output surged 11.2 per cent in the second and third-quarter of 2010 combined, making these the best two quarters for construction for over 45 years. Then the sector suddenly apparently collapsed again, including by a massive 4.7 per cent quarter-on-quarter in the past three months alone.
Such extreme volatility is implausible, and contradicts surveys, even if the public sector has been retrenching in that area. The GDP estimates do suggest a construction bounce-back in March, and it looks as if the official numbers lag the reality on the ground by around six weeks.
And if it were true that the economy hadn’t grown at all during the October-March period, then one ought to expect employment and hours worked to have slumped, given that productivity continues to grow. Yet we have seen the opposite: robust private sector jobs growth, and an increase in the total number of hours worked.
The economy is not doing as well as it should, which is hardly surprising given the hike in VAT and that real take-home pay has been falling as a result of out-of-control inflation. The recovery will be challenging; there will be no fireworks or growth spurts and lots of headwinds. But the trend remains in the right direction, and that is what matters most.
WILLIAM AND KATE
Happy marriages begin when we marry the one we love, and they blossom when we love the one we married, as a wise writer once put it. What is perhaps most heartening about tomorrow’s wedding is that this is a sentiment which the delightful Royal couple appears to have taken to heart. City A.M. wishes William and Kate the very best on their big day, and a life full of joy and happiness.
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