Update: UK Q1 GDP Growth Falls Putting UK Back In Recession

Author: Market News International | Category: News

–Q1 Preliminary GDP -0.2% q/q; unchanged y/y
–GDP data put UK back in technical recession
–Adds National Statistics Officials’ Comments to 0830 GMT Version

LONDON (MNI) – The UK economy fell back into recession in the first
quarter of 2012 as construction output fell sharply and services growth
remained weak, figures released by National Statistics showed Wednesday.

While the Bank of England has been keen to point out it believes
growth will be artificially lower in Q1, pulled down by weak
construction, these figures show more widespread weakness with output
rising only slightly in the service sector.

GDP fell 0.2% on the quarter in Q1 and was unchanged compared to a
year earlier. This was below analysts’ median forecast for a rise of
0.1% on the quarter and followed a 0.3% quarterly drop in Q4 2011,
placing the UK back in technical recession.

Construction output plunged 3% on the quarter, following a fall of
the same magnitude in Q4, knocking 0.2 percentage point off of quarterly
GDP growth. Both the Bank of England and analysts have been puzzled by
the weakness in the sector with the last set of MPC minutes noting, “the
sharp falls in construction output in December and January were
perplexing, and the Committee was minded not to place much weight on

While the BOE can point to construction as a possible aberration in
the data, concerns remain over the strength of the service sector where
output rose just 0.1% in Q1 on the quarter and by 1% on the year. Growth
here was boosted by transport, storage and communication output which
rose 0.4%. Government output rose 0.2% and distribution, hotels and
restaurants was up 0.1%. Output in the business services and finance
sector fell 0.1% on the quarter.

Industrial production is estimated to have fallen by 0.4% on the
quarter, weaker than most analysts thought, knocking 0.1 percentage
point off quarterly GDP growth. A lot of this weakness was due to lower
oil and gas output and stripping this out would mean GDP fell by 0.1% on
the quarter.

It seems probable that the rate of growth will be revised up over
time. At this stage most of the data is actually forecast by National
Statistics, with only 42% of the figures being made up of hard data.
Survey data from the CIPS pointed to stronger growth in the service
sector with the PMI services index rising to its highest level since Q2
2010 in the first quarter.

The construction data, have also been subject to heavy revision in
the past and some of the Q1 weakness looks likely to be revised away.

The Bank of England is likely to continue to believe underlying
growth in the economy is stronger than the data suggest but this outturn
has come in 0.7 percentage point below their February forecast for a
rise of 0.5% on the quarter. While it doesn’t look as though this will
tip the scales back in favour of more QE at the May MPC meeting, it
causes a serious headache for the BOE and government.

Senior National Statistics officials defended the data in a press
briefing following the publication of the data.

Joe Grice, Chief Statistician at National Statistics, said there
was no reason to believe the construction data were less reliable than

He said industry returns had been checked and re-checked, as is

–London newsroom: 44 20 7862 7491; email: puglow@marketnews.com

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