According to official figures that measure GDP in a new way, the United Kingdom's economy was bigger and grew faster than previously considered over the second quarter, The Guardian reports. The economy also recovered sooner from the recession, than it was previously thought.
The Office for National Statistics said the economy expanded 0.9% over April to June as both the dominant services sector and construction enjoyed strong growth. That beat economists’ forecasts for GDP growth to hold at a previous estimate of 0.8%. But at the same time the ONS revised down the first quarter figure to 0.7% from 0.8%, leaving the estimate of year-on-year growth at 3.2%.
The scale of the economy was also upgraded as the ONS moved to a new European-wide way of measuring GDP and incorporated other changes. Under the new method, illegal activities such as drug dealing and prostitution are included and other activities are accounted for differently, including research & development and military spending.
Explaining the figures, the ONS said: “The new data are based on the most far-reaching set of improvements to the national accounts in the last 15 years or so.” The ONS left full-year GDP growth in 2013 unrevised at 1.7%. But it said the changes meant that UK GDP recouped lost ground from the downturn sooner than previously thought.
“The new data show that during the recent downturn the economy shrank by 6.0%, rather than the 7.2% previously estimated. GDP was also estimated to have exceeded its pre-financial crisis levels in Q3 2013, three quarters sooner than previously estimated. However, overall, the average absolute quarter-on-quarter revision between 1997 and 2014 Q2 was 0.16 percentage points,” statisticians wrote alongside the data.
For the second quarter, the ONS said growth was “broad-based” in output terms with production, construction and services all expanding from the first quarter. Agriculture, forestry and fishing contracted slightly quarter on quarter.
Advance in the service sector, which ranges from hotels to banking, was revised up to 1.1% from 1.0% and was the strongest growth for two and a half years. The construction sector grew 0.7% rather than not at all against the backdrop of a buoyant housing market. But at less than 7% of the economy it has little impact on overall GDP.
In news likely to be welcomed by the government as it tries to move to an economy less reliant on consumer spending, the ONS said business investment growth accelerated in the second quarter. It increased by 3.3% on the quarter, compared with 0.9% growth in the first quarter. Household spending rose 0.6%, compared with 0.7% in the first quarter. The savings ratio, an estimate of how much households have available to save as a percentage of their total disposable income, rose to 6.7% but the general trend has been downwards over recent years as workers’ wages fall in real terms.
Exports fell 0.4% from the first quarter and were down 5.2% year-on-year, less beneficially for the government.
Howard Archer, economist at IHS Global Insight saw little improvement on the horizon for trade.
“Net trade will likely find it difficult to make any significant positive contribution to UK growth in the near term at least. The combination of weak eurozone economic activity and a strong pound is hampering the prospects for UK exports to develop decent growth and help overall economic expansion to become more balanced,” he said.
“The latest economic news remains largely strong, although it has been a little more mixed recently. It looks likely that consumer spending growth slowed to some extent in the third quarter, while the manufacturing sector clearly lost momentum,” Archer added.
