Weather blamed for 0.5 per cent GDP fall

Julian Harris
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THE British economy shrank by half a per cent in the final three months of the year, official data showed yesterday, despite economists on average expecting an expansion of up to half a per cent.

The decline was largely blamed on the crippling effects of December’s snowstorms, which knocked half a per cent off the country’s GDP, according to the Office for National Statistics (ONS).

But the effect of the weather and the economic slip up may have been overstated, according to some economists.

“The ONS has hardly covered itself in glory in recent years with its first estimate of quarterly GDP,” said Ian Harwood of Evolution Securities.

“Such estimates are generally subsequently revised, and often very substantially,” he added.

And the ONS admitted: “the effect of the bad weather is the best we can make it at this stage, but is still inevitably uncertain.”

Economic progress would have been “flattish” irrespective of the severe weather, the ONS suggested.

The construction industry plummeted by 3.3 per cent, it found, while the UK’s service sector also shrank by half a per cent.

Yet the results are “at odds with what the monthly purchasing managers’ index (PMI) surveys have been saying,” Harwood argued.

“The composite PMI surveys [which measure economic activity] have run above 50,” he said.

All index scores above 50 indicate economic growth.

“It is possible to construct a monthly series based on separate data for industrial, construction and services output,” added Henderson’s Simon Ward.

“This calculation reveals that the average level of GDP in October and November was 0.1 per cent higher than in the third quarter. In the absence of the bad weather, GDP would probably have risen in December,” Ward claimed.

And Ward believes the effects of the weather have been overestimated in the data. “The December estimate probably relied on information for the early and middle parts of the month when disruption was most severe.”

And the recovery should rebound in the first quarter of this year, economists expect. “The economic recovery is probably proceeding at a moderate pace,” Ward added.