Slew of GDP revisions reveals ‘fragile’ UK recovery

The UK recovery is looking “more fragile” than ever before, with five past quarterly GDP figures revised down by a considerable margin, Office for National Statistics data shows.

The latest set of national accounts reiterated third quarter GDP growth of 0.7 per cent, however the previous five quarters of stellar growth have been reduced in hindsight.

That has dragged down the third quarter’s annual growth rate to 2.6 per cent from 3 per cent.

Capital Economics senior UK economist Samuel Tombs says the result is “quite surprising” as the GDP numbers had already looked weak compared with the survey data.

“The latest set of national accounts leave the UK’s economic recovery looking more fragile than it seemed before,” Tombs says.

The expenditure segment makes the third quarter growth more unbalanced than previously thought, as household spending expansion, quarter-on-quarter, was bumped up by 10 basis points to 0.9 per cent, he adds.

Overall investment growth has been slashed from 1 per cent to just 0.1 per cent.

“Note too that households’ real incomes fell a touch in the third quarter, meaning that consumers funded extra spending by saving a smaller proportion of their income,” he explains.

Despite the “somewhat bleaker” appraisal of the UK’s recent performance, there is still optimism to be held for next year, he adds.

“The recent sharp fall in the oil price and strengthening of pay growth should ensure that growth in households real incomes picks up, providing more sustainable foundations for further growth in spending.

“Meanwhile, the strength of corporate surveys and firms’ balance sheets suggests that the recovery in business investment still has further to run.”

Helped by the end of sterling’s appreciation and the boost it will likely bring to trade balances, Capital Economics believes the nation will rack up 3 per cent growth in 2015, Tombs says.