Revision Plans: Forecasts of UK Economic Growth Are Being Revised Downward but, Argues David Ross, Retail and House Price Growth Mean the Situation Is More Complicated Than It Seems at First Glance. (Economics)

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Just as the US and leading European economies appear to be emerging from last year's slowdown and forecasters revise their GDP estimates upward for 2002 and 2003, the UK economy seems to be heading in the opposite direction. The Office for National Statistics has revised its estimate for first quarter GDP growth from 0.1 per cent to zero, meaning that in the past six months the UK economy has been at a standstill. This leaves output just 1 per cent higher than a year ago.

Meanwhile, last year's European laggards, Germany and France, are estimated to have recorded first quarter growth of 0.2 per cent and 0.4 per cent respectively. US growth has also been revised downward, but it was a robust 1.4 per cent in the first quarter.

UK manufacturing remained in deep recession with output falling by 1.5 per cent in the first quarter. The output of the service sector, which has for so long been the main driver of UK growth, expanded by just 0.2 per cent in the quarter. Business-to-business output fell, as did financial services, because of a decrease in the volume of stock market transactions.

However, other economic signs are considerably more positive and point to the danger of inflation rising above target. Retail sales have been strong, with volume growth of 6.2 per cent in the three months to April, compared with the same period last year. The housing market, which has been particularly strong, is showing no signs of deceleration, and there is evidence that supply constraints are pushing up prices. Moreover, household credit continues to increase rapidly.

Looking ahead, surveys still indicate that manufacturing and services will pick up in the second quarter and into the second half of the year. A CBI survey showed the biggest jump in business confidence in 30 years. Although the Purchasing Managers' Index compiled by the Chartered Institute of Purchasing and Supply fell in June from its May level, it still points to a recovery in manufacturing output. …