Factory data will push GDP data higher

AFTER official data showed that the UK had barely limped out of recession in the fourth quarter, the hope was that the pitiful 0.1 per cent growth would be revised slightly higher when the full figures were released.

On Friday, we will find out whether those hopes were well founded or little more than misplaced optimism. The consensus expectation among City economists is for GDP growth to be revised to 0.2 per cent in the fourth quarter after industrial production in December proved much stronger than expected (0.4 per cent versus forecasts for 0.1 per cent).

The strong growth in the US in the final three months of 2009 was partially driven by renewed stockbuilding; this may well be the case in the UK given the manufacturing survey data as well as the official figures.

However, with household consumption expected to prove a weak contribution and net trade forecast to be a drag on growth, there is still a risk that the Office for National Statistics (ONS) will revise the headline GDP figure lower.

The probability of this happening nonetheless remains relatively small. But even if we do see GDP growth being revised up to 0.2 per cent, this still does not represent any significant improvement in the UK?economy nor does it brighten the outlook. GDP growth is expected to remain low for some time to come and well below pre-crisis pace of about 2.75 per cent per annum.

Commerzbank strategist Peter Dixon estimates that between 2010 and 2014, Britain’s potential GDP growth will only be an annual 1.78 per cent. “Even if potential growth does recover from 2011 onwards, it will not get back to where it would be had the pre-recession growth rate prevailed – the so-called lost output, which we estimate will amount to six per cent by 2015,” he said.

A 0.1 per cent revision higher will do little to rectify the output gap, whatever its size may be.