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News : UK Economy Last Updated: Apr 25, 2013 - 2:05 PM


UK economy avoids falling back into recession; GDP up 0.3% in Q1 2013
By Finfacts Team
Apr 25, 2013 - 11:33 AM

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The UK economy has avoided falling back into recession. GDP (gross domestic product)  increased by 0.3% in Q1 2013 compared with Q4 2012. GDP was 0.4% higher in Q1 2013 than in Q3 2011 and therefore has been broadly flat over the last 18 months according to the Office for National Statistics today.

There were fears of a triple-dip recession, given the poor weather in the quarter.

By far the largest contribution to Q1 2013 GDP growth came from services; these industries increased by 0.6% contributing 0.47 percentage points (pp) to the 0.3% increase in GDP. There was also a small upward contribution (0.03pp) from production; these industries rose by 0.2%, largely due to mining & quarrying, which increased by 3.2% following a weak Q4 2012 when extended maintenance in the North Sea reduced output.

These upward contributions were partially offset by construction; these industries fell by 2.5%, reducing GDP growth by 0.17pp.

Before the sharp fall in output in 2008 and 2009 the economy peaked in Q1 2008; the lowest level was in Q2 2009. GDP fell 6.3% peak to trough. In Q1 2013 it was estimated that GDP was 2.6% below the peak in Q1 2008.

The ONS said that at this stage the snowfall and cold weather during Q1 2013 appears to have had a limited impact on GDP growth. The strongest evidence was that it reduced retail output in January and March 2013 but boosted demand for electricity and gas in February and March, which increased output in the energy supply industries.

The preliminary estimate of Gross Domestic Product (GDP) is produced using the output approach to measuring GDP and is published less than four weeks after the end of the quarter to which it relates. At this stage the ONS said it it is estimated that the information content of this estimate is around 44% of the total required for the final output based estimate. This includes good information for the first two months of the period, with an estimate for the third month which takes account of early returns to the monthly business survey (which typical has a response rate of between 30-50% at this point in time). The estimate is therefore subject to revisions as more data becomes available, but between the preliminary and third estimates of GDP, revisions are typically small (around 0.1 to 0.2 percentage points), with the frequency of upward and downward revisions broadly equal.

Chancellor George Osborne said: "Today's figures are an encouraging sign the economy is healing. Despite a tough economic backdrop, we are making progress. The deficit is down by a third, businesses have created over a million and a quarter new jobs, and interest rates are at record lows.

"We all know there are no easy answers to problems built up over many years, and I can't promise the road ahead will always be smooth, but by continuing to confront our problems head on, Britain is recovering and we are building an economy fit for the future," he added.

Peter Saville, partner at advisory and restructuring firm Zolfo Cooper, comments on the implications of the GDP growth figures for the retail sector: “There are signs of life in the UK economy. However, the recent retail casualties tell us that responding to customer behaviour patterns will continue to be critical to surviving on the high street. Some retailers such as Asos and Sports Direct have had strong sales figures, proving that those who keep up with the latest shopping habits – such as online, click and collect and showrooming - - will be well placed to ride out the tough economic climate.”

Conall Mac Coille, chief economist at Davy, comments: Overall, the big picture is that UK GDP growth slowed sharply, hurt by the euro area recession and the 0.2% contraction in exports in 2012. In fact, domestic demand has been surprisingly strong. UK consumer spending rose by 1.6% in the year to Q4 2012, contributing to the largest current account deficit in 2012 since 1989.

Nonetheless, yesterday's announcement of an extension to the Bank of England's Funding for Lending scheme (FLS) was no doubt intended to pre-empt a poor GDP number today. However, there has been little evidence that the existing FLS scheme has stimulated bank lending. Together with the luke-warm reaction to the chancellor's 'Help-to-Buy' scheme, the FLS' apparent lack of success and poor GDP numbers will intensify the pressure on George Osborne to relax the pace of fiscal consolidation."

John Cridland, director-general of the CBI, the UK's biggest lobbying group, said: “This is a welcome uptick which confirms our view that 2013 will see real growth.
 
“The broad-based pick-up in the services sector is an encouraging basis for further organic growth.
 
“What Britain’s economy now needs to see in the coming months is a recovery in manufacturing output, helped by a brighter global outlook. The Government must build on these emerging signs of confidence by getting behind Britain’s entrepreneurs and exporters.”

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