Bank holidays have wreaked havoc with latest GDP figures, says ITEM Club - underlying picture is stronger than the headline data implies

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

  • It would be a mistake to read much into this data – the bank holidays have wreaked havoc with the figures
  • Most indicators suggest the underlying picture is stronger
  • As these losses are made good – and the Olympics provide a further boost – a bumper Q3 is in prospect

“It would be easy to get carried away with these figures, but the reality is that the Diamond Jubilee bank holidays have wreaked havoc with the data. The ONS has effectively said that output fell by almost 3% across the whole economy between May and June because of the movement of the late-May bank holiday and the extra one in June. But the experience of 2002 would suggest that the vast bulk of these losses will have been made up in July and, when you also factor in the Olympics effects, we should see a bumper Q3.
“We can draw encouragement from the fact that despite the disruption, output in the services sector – the engine of our economy – fell by just 0.1% in Q2. This, added to the much stronger data from the labour market and the business surveys, suggests that the underlying picture is nowhere near as bad as the headline data might imply.
“Stepping back from the Q2 data there are clearly wider issues around the national accounts data, which need to be addressed. The past two years have seen an unprecedented degree of volatility from quarter-to-quarter and a wide divergence between the GDP data and other indicators, in particular the labour market figures. Economists’ confidence in the GDP data has sunk to an all-time low and for policymakers it has made what is already a very difficult job even harder.”