GDP figures raise major question marks over quality of the data – ITEM Cub says the figures 'just do not fit with our experience of the market'

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Andrew Goodwin, senior economic advisor to the EY ITEM Club, comments on today’s UK GDP figures:

  • Our reaction is one of disbelief – these figures just do not fit with our experience of the market
  • Quite clearly there are still problems with accounting for construction output, but there are also major question marks over services
  • The danger is that these figures could dent confidence further and reinforce the culture of risk aversion
  • This throws a real curve ball at the Bank with the decision over QE imminent

“Our reaction to these figures is one of disbelief. The divergence between the stronger survey data and dire official output estimates is virtually unprecedented and must raise significant question marks over the quality of the data.
 
“The construction figures are an obvious source of bewilderment, as they have been throughout the past few years. When you have the PMI survey telling us that the sector is growing at rates well above the long-term average, but the official data tells us that output has fallen by 3% on the quarter, there is clearly a major problem. But it isn’t just the construction data – the services data also looks highly questionable. The monthly data suggests a serious loss of momentum in February and March, yet the surveys are reporting rapid growth and retail sales were up almost 2% in March alone.

“The Bank has consistently argued that it sees the survey data as a better guide than early GDP estimates and, given this evidence, it is difficult to disagree. Certainly the impression that we have from talking to businesses is the UK economy is not in recession.
 
“I would be very surprised if these figures were not revised upwards substantially, although history tells us that this process may take a while. In the meantime, the concern is that the extra bank holiday in June will cause another negative in Q2. The prospect of three successive negative quarters will further depress confidence and reinforce the culture of risk aversion which is preventing any sustainable recovery from taking off.
 
“This also presents a significant problem for the Bank. All indications were that they would not authorise more QE at the May meeting, but today’s figures have thrown them a real curve ball. We suspect that they will stick to their guns, in the belief that conditions are much stronger than the ONS suggests, but that may be a difficult stance to communicate.”