The Office for National Statistics revised GDP data for the first quarter of 2013 has growth unrevised at 0.3% quarter on quarter, but the report also shows that real household disposable income fell by the largest amount in 25 years. The recession was deeper than previously estimated as J.P. Morgan Asset Management Global Market Strategist David Lebovitz points out in a note issued this week.
J.P Morgan makes the following points
- The ONS estimate of real UK GDP growth for the first quarter was unrevised at 0.3%, highlighting that economic growth in the UK remains weak. UK real GDP has been oscillating around zero for the past seven quarters, and the last time the economy saw positive quarter-on-quarter growth for two consecutive quarters was in 2011.
- It is important to keep in mind that GDP data is frequently revised, as well as that it is backward looking; the more recent, forward-looking data is gradually improving, which is a positive sign for the UK economy.
- Although the GDP data was revised to show that the UK did not experience a double-dip recession in 2012, these revisions did highlight that the recession was more severe than previously estimated. Specifically, the economy shrank 7.2%, rather than 6.3%, from its peak in 2008 to the low. This was due to a larger decline in investment than previously estimated, and leaves GDP 3.9% below its previous peak.
- The household saving ratio, which is the amount of money households have available to save as a percentage of their total disposable income, fell to 4.2%, the lowest level since the first quarter of 2009, when it was 3.4%.
- Real household disposable income increased 1.4% in 2012, its largest annual rise since 2009. However, it declined 1.7% in the first quarter of 2013, its largest quarterly drop since 1987, which was partially due to falling wages.
Lebovitz adds: “Although the UK economy is beginning to show some signs of strength, achieving stronger growth will be an uphill battle. Inflation continues to outpace wage growth, which, coupled with government spending cuts, will drag on economic growth in the coming quarters.
“The Bank of England is holding the first policy meeting led by new governor Mark Carney on Wednesday and Thursday next week, and it seems clear that additional easing from the central bank is needed to support the recovery and may come later in the year.”