23rd September 2015 by Simon Ward
GDP revisions to be published by the Office for National Statistics (ONS) on 30 September will reveal significantly stronger growth in recent years, helping to explain the “productivity puzzle” and confirming that the double / triple dip scares of 2012 and 2013 were wide of the mark.
The ONS has already indicated the scale of revisions up to the fourth quarter of 2013; the 30 September release will extend the process to the present. The currently-available numbers show that the recovery was weaker than previously thought in 2010 but significantly stronger over 2011-2013. GDP is now estimated to have risen by a cumulative 6.0% between the fourth quarters of 2010 and 2013, equivalent to 2.0% at an annualised rate, versus a prior 4.2%, or 1.4% annualised.
GDP surpassed its pre-recession peak in the second quarter of 2013, one quarter earlier than previously thought.
GDP growth in calendar 2013 has been raised from 1.7% to 2.2%. The consensus at the time was for a sub-1% outcome, with much talk – notably from the IMF – of the risk of a recession (in contrast to the positive view taken here).
The end-September release may extend the upward revisions to growth since the fourth quarter of 2013. Even if the quarterly path since then is unchanged, however, the upgrades to earlier data imply that the GDP increase in calendar 2014 will be raised from 3.0% to 3.3%.
The revisions reflect a combination of methodological changes and new data. According to the ONS, the biggest impact has come from measures to improve coverage of small business activity and capture income concealed by tax evasion. The revisions could affect sectoral financial balances (i.e. income minus spending); as previously discussed, the household sector is currently estimated to be running a deficit.
The revisions are unlikely to alter MPC thinking: the direction, if not the scale, was expected and the MPC will attribute most of the upgrade to better supply-side performance, implying little change to its estimate of slack. They are potentially more significant for fiscal policy, since they may result in the Office for Budget Responsibility (OBR) raising its estimate of trend GDP growth, in turn boosting revenue forecasts. The scale of fiscal adjustment needed to meet targets, therefore, may be smaller than the OBR judged at the time of the July Budget.