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Edmund Conway

I am Economics Editor of The Telegraph newspapers and website. Come join in as I try to get my head, and hopefully yours, round what on earth is happening in the financial crisis. I also blog occasionally on music, literature and anything else that takes my fancy. I have written a guide to economics - 50 Economics Ideas You Really Need to Know - which you can buy here.

Don't be fooled: GDP was actually revised down

By Edmund Conway Economics Last updated: February 26th, 2010

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I’m going to say something which might come as a surprise, given all the positive coverage this morning of the GDP figures. The Office for National Statistics has actually revised GDP down today – not up.

The size of the British economy – in other words the total amount of cash generated by its companies and spent by its people – was actually £133m smaller in the fourth quarter than the ONS previously thought. Before today’s revisions, it thought the economy pumped out £315,845m worth of output in those three months. Now, it thinks the actual figure was more like £315,712m.

“Erm… what?” you are no doubt thinking. Wasn’t the story today that the ONS came out and announced that the economy grew by 0.3pc in the final quarter of 2009, as opposed to its original estimate of 0.1pc? How on earth is that consistent with what you’re telling us? Quite consistent, I’m afraid, because it wasn’t merely the latest quarter worth of data that the ONS revised today – it also went back through a whole range of its statistics, and discovered that the recession was in fact significantly deeper than it previously thought. So although in Q4 Britain ended up producing more or less the same amount of cash (actually £133m less, as I’ve pointed out), it produced even less than was previously thought in the preceding quarters. So, in comparison, the jump between Q3 and Q4 works out at 0.3pc rather than 0.1pc.

Here's how the picture of the economy has changed as of today's figures. These lines represent total GDP produced each quarter. Note how the profile of the last leg of the recession has just become steeper

So the official statistics now show that the UK is even worse off than we thought today – though because everyone is fixated on the headline percentage numbers, the significance of this will doubtless be lost on most people.

Also revealed by those revisions is the fact that the total peak-to-trough fall experienced by the UK economy in this recession was 6.2pc, rather than the previously-estimated 6pc. This makes it by some margin the worst recession since the 1920s. On the bright side, the exit from the recession is a little less shallow than previously thought, but 0.3pc growth is far from the bounce-back experienced in the US, and which usually accompanies the end of a recession, and this underlines the likelihood that this will be a sluggish, painful recovery.

According to Andrew Lilico of Policy Exchange, “The faster growth Q-on-Q was entirely the result of a downwards revision to 2009 Q3. There were also revisions to 2009 Q1 and Q2 but not further back. In fact, the contraction in 2009 became larger than previously estimated – now 5pc.”

And just to add to our worries, a brief examination of the GDP figures (which are now more than three-quarters complete, so are pretty reliable), much of the growth (such as it was) was provided by retail, by car manufacture and sales, and by government expenditutre. It doesn’t take an economic genius to realise that these are all reliant on artificial props from the government (VAT cut, car scrappage scheme, brought-forward state spending) which will soon be, or have already been, withdrawn.

No wonder Alistair Darling was reluctant to spend much time basking in the apparent glory of these figures this morning. They are, I would say, more bad news than good.

PS apologies for the rudimentary chart, courtesy of the fact that my version of Excel is not particularly swanky, and that I had to get the figures off the ONS themselves (they aren’t even on Datastream or Bloomberg!).

UPDATE: It’s been pointed out to me that the ONS’s press release accompanying the figures (pdf link) is entitled: “Services growth in December pushes up GDP estimate”. That is plain wrong. Rather worrying that the statistics office itself has made such a misleading mistake.

Tags: Alistair Darling, depression, financial crisis, GDP, Gordon Brown,recession, revisions, statistics