Economists hopeful of better GDP

Published on Tuesday 24 November 2009 21:25

BRITAIN'S recession may not be as deep as first feared, with economists predicting the publication of upwardly-revised GDP data today.

It comes despite news the US economy grew at a much weaker rate than originally forecast between July and September.

Yesterday's revised estimate said US output grew at an annual pace of 2.8 per cent, compared with the 3.5 per cent the department of commerce initially forecast earlier this month.

Back home, initial figures for the third quarter, released towards the end of last month, showed the UK economy still mired in recession, defying expectations for a rebound.

Although substantial revisions in second release national accounts data are rare, economists yesterday pointed to the possibility of a small upward adjustment today.

Recent surveys have highlighted recoveries in the manufacturing and service sectors, while official data has suggested a pick-up in high street sales.

Yesterday, the Office for National Statistics said UK business investment had fallen by 3 per cent in the third quarter, compared with the previous three months. The decline was half the 6 per cent slide expected by analysts and well below the 10.2 per cent plunge recorded in Q2.

Howard Archer, chief UK economist at forecasting group IHS Global Insight, said he expected the decline in GDP in the third quarter to be trimmed to 0.3 per cent quarter-on-quarter and 5.1 per cent year-on-year from 0.4 per cent and 5.2 per cent previously.

"Latest data and survey evidence are showing overall improvement, and it looks odds-on the economy will finally return to growth in the fourth quarter," he said. "But then again, like everyone else, we thought it had done so in the third quarter."

Ben Williamson, economist with the Centre for Economics and Business Research (CEBR), also expected the second estimate of GDP to be upwardly-revised to a 0.3 per cent decline.

Just last week, the CEBR warned Britain's economy risked re-entering recession next year after it forecast a "misleadingly strong bounce back" in the closing months of 2009.

Commenting on the latest US economic data, CEBR economist Arek Ohanissian said: "Though expected, the revision acts to confirm the view the recovery will be both sluggish and fragile in the near to medium term."

As well as revealing a quarter-on-quarter drop, yesterday's ONS data showed business investment in the UK was almost 22 per cent lower than the same period last year at 28.4 billion.

David Kern, chief economist at the British Chambers of Commerce, said the decline highlighted the "challenges and risks facing the economy over the next few years".

He added: "Despite this fall being smaller than in previous quarters, the persistent downward trend is worrying.

"The government must remove all obstacles hampering businesses from maintaining and recruiting skilled labour, and from accessing the required finance to rebuild capacity."