GDP picks up for second quarter in succession: Pace of recovery trails Treasury forecast

Click to follow
The Independent Online
THE ECONOMY enjoyed a second successive quarter of robust economic growth between April and June, but the recovery is proving slightly slower than Treasury economists predicted in their internal May forecast, writes Robert Chote.

Gross domestic product - the amount of goods and services produced in the economy - rose by 0.5 per cent in the second quarter, following 0.4 per cent growth in the first quarter, according to the Central Statistical Office. This was the biggest increase for more than three years.

The economy has now recovered just over a third of the 4.1 per cent fall in output it suffered during the recession. The recovery has been slower than that from the recession of the early 1980s, when output fell 5.5 per cent.

The figure was in line with City forecasts, which have have been boosted by the run of upbeat economic indicators in the past couple of weeks. But the GDP estimates did suggest that the CSO expects factory output in June to be well down on May's figure.

Excluding volatile North Sea oil and gas extraction, the economy grew by 0.5 per cent in the second quarter, slightly down on the 0.7 per cent growth achieved in the first quarter. Non-oil output had been virtually flat in the last three quarters of 1992.

Output of services was 0.5 per cent up in the second quarter, driven largely by banking, finance and business services. Output from distribution, hotels and catering was up marginally on the quarter. Manufacturing output was higher, but energy and construction saw output fall.

Second-quarter growth was fractionally more subdued than the 0.6 per cent Treasury economists had expected when they drew up the May internal forecast, which underlies the assumptions for the annual public spending round.

But this still leaves the economy within reach of the May forecast of 1.8 per cent growth for the full year, with the increase in output predicted to accelerate in the third quarter before slowing slightly in the fourth.

Kevin Gardiner, economist at Warburg Securities, said most City and academic forecasters were now predicting that the economy would grow at its trend annual rate of 2 - 2.5 per cent in the second half of the year.

But Nick Parsons, of Canadian Imperial Bank of Commerce, warned: 'The government over-emphasis on inflation and deficit reduction makes their 3 per cent growth forecast to mid-1994 a tough target to achieve.'

(Graph omitted)