The first estimate of GDP in Q1 was released this morning; it was disappointing, and could have a big impact on the election. It is a shame – the data is almost certainly wrong and way too pessimistic.

Three months ago, the ONS released its first estimate of GDP for the final quarter of last year, and it was a big disappointment. Markets had expected growth of around 0.4 per cent, but the survey said “oops”.
In fact, the ONS had growth of just 0.1 per cent. Economists, politicians and commentators across the land told us how woeful the UK’s performance was.

And then the ONS revised its figures up to 0.2 per cent. And the herds of those who are supposedly in the know said, yes, but it is still bad. And then the ONS revised its estimate to 0.3 per cent, and they said, well, that’s better. And then finally the estimate was revised to 0.4 per cent. What the markets had predicted in the first place. But by then it was old news, and no one really cared. The fact that, actually, the UK grew at an okay rate, while Germany was flat, was barely noticed. Originally the data said Germany was doing better than the UK, and that idea stuck in the subconscious of the electorate like a fishbone in the throat.

The markets had expected the UK to expand by 0.4 to 0.5 per cent in Q2. This morning the first estimate from the ONS was released. It said the UK expanded by 0.2 per cent. No doubt economists, politicians and commentators across the land will tell us how woeful the UK’s performance was.

The truth is that surveys from the likes of CIPS/Markit and the CBI gave a far more reliable account of what the UK was really doing in Q4 than the initial estimates of growth from the ONS.

The latest Purchasing Managers index for manufacturing stood at its highest level since the mid 1980s. The CIPS/Markit index for services was not quite so high, but still suggested annual growth of around 2 per cent. Yesterday, the latest industrial trends survey from the CBI, this time for April, rose to its highest level since the mid 1990s. The CBI index tracking output expectations suggests growth of around 4 per cent.

Both the CBI and CIPS/Markit surveys agree that the manufacturing recovery is export led. The cheap pound is beginning to work.
Okay, the reversal of the VAT cut and the snow may have had an effect on growth, but, and here is the prediction you read here first: the ONS will revise its estimate over and over again, and the final figures will suggest the economy expanded in the region of 0.4 to 0.5 per cent.

And while we are in prediction mode, the IMF has forecast growth of 1.3 per cent for the UK this year. Unless sterling suddenly enjoys a rally and rises back up to the kind of levels it stood at two years ago, the IMF forecast, too, will be revised upwards.

© Investment & Business News 2013