The UK is officially back in recession. Today's figures show that GDP fell by 0.2 per cent in Q1, after a similar fall in Q4, thanks mainly to a three per cent drop in construction output. This poses the question: can we believe this numbers?
Yes, says Azad Zangana at Schroders. He says that whilst there is the possibility of a revision, it might not be enough to entirely remove the fall. He says: "It will be remarkable if the Bank of England does not respond with more quantitative easing."
However, Chris Williamson at Markit is more sceptical. He says: "The underlying strength of the economy is probably much more robust than these data suggest." David Kern at the British Chambers of Commerce agrees, saying the ONS "paints an unduly pessimistic picture of the state of the economy." And John Cridland, director-general of the CBI says the ONS’s estimate of service sector activity - showing growth of just 0.1 per cent - "does not tally closely with a range of survey indicators."
Today's figures conflict with at least five other findings:
- Purchasing managers surveys found a "marked expansion" in construction activity, and the strongest growth in services activity since Q2 2010.
- Official figures show that retail sales volumes rose 0.8 per cent in the quarter. Would consumers really have gone on such a spending spree of the economy was shrinking?
-The ONS reported last week that in the three months ending February, total hours worked rose by 1.4 per cent. This can only be reconciled with falling GDP either if hours fell sharply in March or if productivity has slumped.
- The NIESR estimates that GDP grew by 0.1 per cent in Q1.
- The latest British Chambers of Commerce survey found a "welcome improvement" in the economy.
The ONS itself says that the average revision to its first estimate of quarterly GDP growth has been 0.28 percentage points. Mr Williamson points to Q3 2009 as a possible precedent. Back then, purchasing managers surveys pointed to the economy growing, but the first estimate of GDP showed a drop of 0.4 per cent. However, this has since been revised, to show a rise of 0.2 per cent.
It's not just private sector economists who are wary of the numbers, though. So too are some at the Bank. In a recent speech, deputy governor Paul Tucker said that official mismeasurement of construction activity "can't be ruled out."
Does all this matter? In two senses, maybe.
First, says Mr Williamson, there's a danger that these numbers might reduce business and consumer confidence and so cause a "real recession."
Secondly, it matters for monetary policy. To the extent that these numbers are credible, the case for QE is stronger.
In another sense, though, it doesn’t much matter. Let's say that GDP had risen 0.2 per cent in Q1. This would still mean that it was 3.9 per cent below its 2007Q4 peak, and that this is an even longer recession than we saw in the early 30s.
Whether today's numbers are right or not, then, the big picture is that the economy is doing very badly.
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Chris blogs at http://stumblingandmumbling.typepad.com