ONS admits UK economy recovered sooner, grew faster than thought
Britain’s economy was bigger and grew faster than previously thought over the second quarter, according to official figures that measure GDP in a new way.
The economy also recovered sooner than previously thought from the recession.
The Office for National Statistics (ONS) 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 size 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.
Economists said the new estimates suggested there was less slack in the economy than previously thought and that could have implications for how soon the Bank of England starts to raise interest rates as it seeks to contain price pressures.
James Knightley, economist at ING Financial Markets said: “The substantial revisions due to new methodology mean that the UK economy is now 2.7% larger than it was before the global financial crisis started. Under the old methodology the data had shown that the UK was only 0.2% larger, which implies that there is now less spare capacity in the UK economy than previously thought.
