THE GDP figures are right at the lower end of our expectations. The manufacturing and services figures came in pretty much where we expected them to, but the construction outturn is very disappointing in the context of the monthly data that has already been published.
Construction output must have collapsed in December to get such a small boost over the quarter as a whole.
The extraction sector also continues to exert a major drag. Where oil production was once a major support to UK activity, the sector is declining rapidly and the Q4 collapse means that output has now fallen by almost 40 per cent over the past five years. This is having a significant impact on the GDP figures – the excluding oil measure is just over 2 per cent short of previous peaks, in contrast to the 3.5 per cent shortfall for GDP.
In reality, the quarterly growth rate does look worse than it really is. As well as the oil issue, the level of GDP in Q3 was inflated by the inclusion of the revenues from the ticket sales and TV rights from the Olympics and Paralympics boosted GDP. Accounting for that, you are left with an economy that is pretty much flat, as it has been for much of the past year when these one-off factors are stripped out.
This week’s snow also rings alarm bells about 2013 Q1. Hopefully the fact that the disruption has come early in the quarter means there is more scope to catch up. But the chances of another negative quarter – and a technical recession – are relatively high.
That said, we are more optimistic about prospects further out. Employment growth in the UK, if not in Scotland, has been much stronger than would normally be expected with a flat GDP picture, while the external outlook is also beginning to improve, particularly in the United States.
We still think that growth of close to 1 per cent is achievable for 2013 as a whole. And even stronger outturns could be possible were fiscal and monetary policy more supportive.
• Andrew Goodwin is a senior economic adviser to the Ernst & Young ITEM Club.