Economist’s reaction to unexpected GDP data

Posted on 27 Sep 2012

Markit's Chief Economist Christopher Williamson tells TM his view on today's GDP data which revealed that Britain’s economy shrank slightly less than estimated, falling 0.4% from April to June not 0.5% as economists had expected.

Chris Williamson
Christopher Williamson, Chief Economist at Markit

“The underlying trend this quarter was one of very modest growth, after allowing for the lost working day due to the Jubilee.

“The second half of the year is likely to be substantially better than the first half, although the underlying rate of growth looks set to be modest at best due to the ongoing challenging environment facing households and businesses.

“The ONS do not adjust data for the number of working days, and if the lost day due to the Jubilee were taken into account the economy would most likely not contracted at all, even possibly shown very modest growth.

“Construction acted as the main drag, though it contracted by 3.0% rather than the estimated 3.9%. Manufacturing also contracted, though it showed a smaller than previously thought fall, dropping 0.8% instead of 0.9%.

“A big improvement was seen in business investment, which rose 0.9% instead of declining 1.5%, as previously estimated. While this is only a modest improvement in the investment picture, it is an encouraging sign with regard to corporate health.

“A rebound is likely for the third quarter. Data such as retail sales, industrial production, tax receipts and exports have all suggested that the economy picked up again in July.

“While the economy looks likely to pull out of its double-dip recession, the underlying rate of growth is likely to remain very modest, reflecting the current weakness of global economic growth, ongoing uncertainty caused by the euro zone crisis, persistent high unemployment and austerity measures.

“However, the GDP data for the second half of the year should nevertheless turn out to be significantly better than the first half.”

Christopher Williamson, BA, MA (Econ)

Chris Williamson studied Economics at the University of Nottingham and Economic Development at the University of Manchester. Chris is now the Chief Economist at Markit and is the company’s principal spokesperson on economic issues, commenting regularly on global economic trends in national and international print and broadcast media.