Hamish McRae: Don't worry about bad figures – chances are they're wrong

Economic Life: The first thing to say is we have been doing quite a lot better than has been reported

It's the morning after – and it was not much of a party the night before. The more one crawls over the great wodge of economic and financial information that came out with the Budget, the clearer it becomes that the key to getting the country's finances back on to a sustainable basis will be growth. It is the only way out. It is incredibly hard to cut the deficit if the economy is growing at less than 2 per cent a year and we have been struggling to achieve that since the recession struck. So what are the prospects for growth?

Well, the first thing to say is that we have been doing quite a lot better than has been reported.

There are been substantial upward revisions to the growth numbers initially recorded, as highlighted by the Office for Budget Responsibility (OBR).

On page 20 of its new report it says: "In January 2011, the ONS [Office for National Statistics] published its first out-turn estimate for growth in 2010. Thanks to the unexpected 0.5 per cent fall in GDP in the fourth quarter, its initial estimate was just 1.4 per cent, lower than all 36 outside forecasts made at that time. But now, following a series of upward revisions, the current ONS estimate for growth in 2010 is 2.1 per cent – higher than every outside forecast made at the end of 2010 and all but two of those made at the start of 2010."

So 1.4 per cent turned out to be 2.1 per cent. Readers with good memories may recall than when that 0.5 per cent, fourth-quarter fall in GDP was published I wrote in these columns that the figure was wrong – much to the annoyance of the ONS, who rang to object. Well, now we are beginning to learn what really happened. I expect the 2011 growth figure, officially recorded as 0.8 per cent, to be wrong too and when all the numbers are revised it will eventually be seen to be around 1.3 per cent – not great but not quite so bad as it seems.

So you see, all this earnest debate about the slow pull out of recession is based on figures that turn out to be wrong. What is happening to growth is undoubtedly disappointing, but it is not as dire as the relentless comment would suggest.

Will it pick up? The OBR forecasts 0.8 per cent this year, 2 per cent next, rising to 3 per cent in 2015 and 2016.

Take this year first: intuitively, that 0.8 per cent feels a bit too low but whether it is will depend on two main factors both beyond out control – Europe and oil.

The eurozone as a whole has gone back into recession and it is hard to see it pulling out strongly given all the austerity being piled on to its weaker economies, including two big ones, Spain and Italy.

The very latest data has gone negative for two months. The top graph shows how this indicator gives a feeling for what might happen to GDP – Credit Suisse notes that this is consistent with a flat GDP, or a small minus, in the first quarter and that is probably right. The European economy is not falling off a cliff, or at least the evidence at the moment says it is not; but it may well shrink during the calendar year, as the OBR expects it to do.

The question then is whether a shrinking European economy could bring about a shrinking UK one. The answer is not necessarily, for exports to the eurozone have been falling steadily as a proportion of the total and are now smaller than exports to North America and Asia/Australasia. We are being quite successful in diversifying away from the European market. Our biggest single market remains the US and the recovery there, phew, is at last taking hold. But Europe will to some extent be a drag on the UK economy.

The other worry is oil. In dollar terms oil is not quite at its previous peak (see bottom graph) but in sterling terms it is just about there. Were it to shoot up to say, $200 a barrel, perfectly plausible were there disruption to supplies from the Middle East, the developed world might well be pushed into a double dip.

Fortunately, commodity prices in general, and food prices (see graph) have not risen as much as they did at the peak of the boom, so the inflationary impact is more muted now than then. Fortunately too, other energy prices, notably natural gas, have not come up as fast as oil this time. But an economy such as the UK's cannot hope to grow much until it gets inflation down and that will only happen if energy prices are stable or, better, fall.

Those are the two main potential negative surprises. Are there any which are potentially positive? The only obvious one would be lower-than-expected inflation. It is tantalising.

The UK has had decent nominal growth – in money terms that is – but because inflation has been so way above target, higher prices have absorbed all of people's additional purchasing power.

This is not the place to go into the debate as to why we have higher inflation than the eurozone or the US, or to savage the Bank of England's monetary committee for its insouciance to repeated overshoots. My point is simply that if we can get rising prices under control that will mean more money in people's budgets to spend on other things.

Consumers are reportedly more cheerful than they have been for a year, notwithstanding the bad retail sales figures yesterday. Since consumer spending accounts for two-thirds of final demand, even a modest revival would have a disproportionate impact on growth. It would also help tax receipts, and the Government desperately needs those.

My guess, when the final figures are eventually known, will be that growth in 2012 will turn out to be somewhere between 1 per cent and 1.5 per cent. That would not be very good, but it would not be dreadful, and if in the months ahead there are some discouraging GDP numbers, console yourself with this: they will probably be wrong.

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex
Arts and Entertainment
Victoria Wood, Kayvan Novak, Alexa Chung, Chris Moyles
tvReview: No soggy bottoms, but plenty of other baking disasters on The Great Comic Relief Bake Off
Sport
Ashley Young celebrates the winner for Manchester United against Newcastle
footballNewcastle 0 Man United 1: Last minute strike seals precious victory
Life and Style
Tikka Masala has been overtaken by Jalfrezi as the nation's most popular curry
food + drink
Arts and Entertainment
Seth Rogan is one of America’s most famous pot smokers
filmAmy Pascal resigned after her personal emails were leaked following a cyber-attack sparked by the actor's film The Interview
News
Benjamin Netanyahu and his cartoon bomb – the Israeli PM shows his ‘evidence’
people
ebooks
ebooksA special investigation by Andy McSmith
Arts and Entertainment
80s trailblazer: comedian Tracey Ullman
tv
News
i100
Life and Style
A statue of the Flemish geographer Gerard Kremer, Geradus Mercator (1512 - 1594) which was unveiled at the Geographical Congree at Anvers. He was the first person to use the word atlas to describe a book of maps.
techThe 16th century cartographer created the atlas
Arts and Entertainment
Stephen Tompkinson is back as DCI Banks
tvReview: Episode one of the new series played it safe, but at least this drama has a winning formula
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Christine McCleave: FP&A Analyst

£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Day In a Page

War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

What is it like to live with Alzheimer's?

Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
The Internet of Things: Meet the British salesman who gave real-world items a virtual life

Setting in motion the Internet of Things

British salesman Kevin Ashton gave real-world items a virtual life
Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

Election 2015: A dead heat between Mr Bean and Dick Dastardly!

Lord Ashcroft reveals latest polling – and which character voters associate with each leader
Audiences queue up for 'true stories told live' as cult competition The Moth goes global

Cult competition The Moth goes global

The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

Pakistani women come out fighting

Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
Leonora Carrington transcended her stolid background to become an avant garde star

Surreal deal: Leonora Carrington

The artist transcended her stolid background to become an avant garde star
LGBT History Month: Pupils discuss topics from Sappho to same-sex marriage

Education: LGBT History Month

Pupils have been discussing topics from Sappho to same-sex marriage
11 best gel eyeliners

Go bold this season: 11 best gel eyeliners

Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
Cricket World Cup 2015: Tournament runs riot to make the event more hit than miss...

Cricket World Cup runs riot to make the event more hit than miss...

The tournament has reached its halfway mark and scores of 300 and amazing catches abound. One thing never changes, though – everyone loves beating England
Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

Katarina Johnson-Thompson: Ready to jump at first major title

After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot