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UK growth better than originally thought

Revisions by the Office of National Statistics show that Gross Domestic Product fell by 0.6% in the three months from April to June this year. The first estimate had been a decline of 0.8% which was subsequently downgraded to 0.7% and now 0.6%. This means that GDP is now 5.5% lower than the second quarter of 2008.

 

What caused the revision? This was mainly due to the fact that the ONS had seriously overestimated the decline in construction output during the quarter. Originally it was thought that construction output had fallen by 2.2% but this has now been revised downwards to 0.8%. Overall, output of the production industries fell by 0.5% compared with a drop of 5.1% in the first quarter, and manufacturing output fell by 0.1% compared with a fall of 5.4% in the previous quarter.

 

The latest GDP trend can be seen in the figure below.

Source: ONS

Source: ONS

 

Other figures show that service sector output fell by 0.6% compared to a fall of 1.9% in the first quarter. Household expenditure fell by 0.6% and is now 3.6% lower than the same quarter last year. Government final consumption expenditure, by contrast, rose by 0.6% to reach a level 2.2% higher than in the same quarter of 2008.

 

However, what was particularly telling was the drop in gross fixed capital formation of 5.2% in the second quarter, which is now showing a 17.2% drop on the second quarter of last year.

 

The chancellor, Alistair Darling, believes that we are nearing the end of the recession. Speaking yesterday to the Labour Party conference he said: “I think it is too early to say so with total confidence. But I stick with my Budget prediction that, as long as we continue to support the economy, recovery will be underway in the UK by the turn of the year.”

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