Outlook Does it matter that the economy shrank by 2.4 per cent in the first quarter of the year, rather than the 1.9 per cent the Office for National Statistics initially estimated? Or that the recession actually began in the second quarter of last year, rather than the third quarter as we had thought?
In one sense, yesterday's revisions to the historical data are not important: they simply offer a more complete picture of what happened in the recent past. What they do give us, however, is a better idea about what might happen in the months ahead.
One point is that the inventory correction – the extent to which producers stopped making goods so they could run down stocks – was much more severe than we realised, especially in the construction sector. Having pared back stocks so drastically, producers now have more room to grow, so the economic bounce should be higher. We may even see a formal end to recession when the quarter two figures are published.
That said, just as the inventory effect exaggerated the pace of the slowdown as we went into recession, the rebound seen in official data will be artificially positive. Growth may return, but don't expect to see improvements in the unemployment figures any time soon, for example.
Also, the ONS's latest data gives us every reason to think the recovery will be patchy, and that the so-called double dip recession, of which this paper warned yesterday, is a real possibility. In particular, the ONS reports that consumer spending fell dramatically during the first quarter: partly on rising unemployment, but also because people are attempting to pay down debt or even boost savings. That hardly augurs well for any kind of sustained recession.
Nor do the continued constraints in the credit markets, which still offer little respite to either individuals or corporates, or the impact of the tax rises announced in the last Budget, offer much comfort. And just to complete the depressing outlook, the rise of sterling in recent months threatens the chances of an export-led recovery (not that our trading partners are, in any case, rolling in cash with which to buy British).
Finally, it's also worth noting that the revisions to the growth numbers imply that the economy will perform less well over the whole of the year than anyone working on the basis of the ONS's initial figures would have been expecting. That implies the Treasury should now be planning for lower tax revenues – and higher borrowing – than first thought.
To put all this another way, the data we saw yesterday in the rear-view mirror told us that the road along which we have just travelled was even more riddled with potholes than we had realised. The damage done may cause further problems on the undoubtedly bumpy road ahead.