UK GDP on course for bumper Q2 rise

19th June 2013 by The Harried House Hunter

Available evidence supports the suggestion in a previous post that UK GDP will rise by a strong 0.8% in the second quarter – a preliminary estimate will be released on 25 July. Such an outcome would force a big upward revision to the consensus forecast for 2013 growth – still only 0.9%, according to the latest Treasury survey.

Industrial output – accounting for 15% of GDP – was 0.9% higher in April than its first-quarter average. Assuming, conservatively, no change in May / June, the sector will contribute +0.15 percentage points to the second-quarter GDP change.

April output is also available for the construction sector, with a GDP weight of 6%. The April number is not seasonally adjusted but an adjusted estimate can be derived by applying the year-on-year percentage change to seasonally-adjusted output in April 2012*. As expected, construction activity bounced back strongly after a weather-depressed winter – April output was 3.4% above the first-quarter average. Assuming, again, flat output in May / June, construction will contribute +0.2 percentage points to second-quarter growth.

April output for the dominant service sector, with a 77.7% weight, will be released on 28 June. Services activity surprised positively in the first quarter, raising the possibility of payback in the second quarter. Available indications, however, are reassuring: April turnover in private non-financial services excluding retail / wholesale trade rose by a strong 8.3% from a year earlier**, while the services PMI activity index reached a 14-month high in May.

Reflecting sequential gains in the first three months, March services output was 0.5% above the first-quarter average, so a further rise of only 0.1% over April-June would yield quarterly growth of 0.6%. This would add 0.45 percentage points to the GDP change, sufficient to produce an increase of 0.8%, incorporating the contributions of +0.15 and +0.2 from industry and construction respectively.

The forecast here remains that a combination of a strong second-quarter result, upward revisions to earlier data and solid second-half expansion will produce GDP growth of about 2% for 2013 as a whole.

*The ONS has released provisional seasonally-adjusted monthly output data up to March 2013.
**The annual comparison was boosted by Easter / working day effects.

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