The broadest measure of sterling's strength – the trade-weighted index produced by the Bank of England – dropped to a four-month low, down from 78.6 points to 77.9, while the euro climbed to just beneath the 90 pence mark, as economists mulled the fact that the ONS's second revision of GDP was far less promising than it at first seemed. In a press release entitled "Services growth in December pushes up GDP estimate", the ONS reported that gross domestic product – the broadest measure of overall economic performance – increased by 0.3pc in the final three months of 2009, rather than the 0.1pc expansion it had previously estimated. However, the revision, which was higher than most economists had expected, reflected the fact that it also revised down growth in previous quarters, meaning that the bounce was only sharper because it started from a lower level. In fact, the official estimate of the level of economic output in the fourth quarter was actually £133m lower than the ONS's previous estimate, at £315,712m. The ONS also revealed that the peak-to-trough fall in economic output was, at 6.2pc, significantly steeper than the 6pc decline previously estimated – making this the deepest recession since comparable records began just after the Second World War, and by most yardsticks the most severe economic contraction since the 1920s. Andrew Lilico, chief economist at Policy Exchange, pointed out that the lower estimate of GDP would have far-reaching consequences for the public finances. He said: "A political consequence is that, since the economy will now be smaller at the start of the 2010/11 budget year, tax receipts should now be expected to be lower, so the 2010/11 and 2011/12 deficit projections will need to be revised up – perhaps to above £200bn – even if the deficit ends up fractionally down this year. That makes early spending cuts more urgent." There are also concerns that the increases in GDP will be short-lived, since they are largely powered by strong growth from car manufacture and sales, retail sales and government expenditure, which are being supported by the car scrappage scheme, the VAT cut and crisis-related spending. All three of these supports are either set to expire, or already have, raising the prospect that GDP will slide back again in the coming quarters. Nonetheless, the slightly steeper expansion in the fourth quarter may spark suspicions that the Prime Minister will call an election earlier than the currently anticipated date of May 6.Pound slides as figures underline scale of UK recession
The pound slid to new lows on Friday after it emerged that an apparent improvement in Britain's growth late last year disguised the fact that the Office for National Statistics has actually cut its estimate of Britain's economic output.
Saturday, 27 February 2010
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