The first estimate of UK GDP showed that both weaker construction and industry led to economic slowdown in the fourth quarter. Will new expenditure data help boost the second estimate?
The first estimate of the UK gross domestic product (GDP) showed the economy slowed to 0.5% in the fourth quarter of last year, down from 0.7% measured in the previous three months. Expectations ahead of the second estimate suggest no change to the headline quarterly figure. The Office for National Statistics (ONS) is releasing fresh data on Thursday morning.
The first estimate was composed of around 50% of the data available, and included data only on the output side of GDP.
The latest statistics showed industrial production, accounting for some 15% of the total GDP, was revised up by two percentage points to a growth of 0.1% in the fourth quarter, which is unchanged from the previous quarter, while manufacturing output growth slowed a little, from 0.3% to 0.1%.
The construction sector disappointed significantly at the end of 2014, as output in this sector was revised down sharply to a decline of 2.1%. However, the ONS analysts said those two revisions should have no impact, or impact less than one decimal place on the first estimate of GDP growth.
The services sector, which is the largest segment of the economy and accounts for nearly 80% of the total GDP, is estimated to have remained unchanged at 0.8%. Because of its significant weight on growth, much will depend on the revisions in the services sector, which the ONS will present on Thursday alongside the second GDP estimate.
Markit's PMI survey showed activity in services slowed to a 19-month low in December. Construction and manufacturing also slowed, which led Markit to suggest that growth in the fourth quarter decelerated to 0.5%.
Stronger expenditure data
Thursday's release will include the expenditure data, which could help boost the headline quarterly figure if there are no significant downward revisions to other segments of growth.
Retail sales volumes accelerated sharply between the third and fourth quarters. The ONS said this was the highest growth since April 2002 and should have a positive contribution to growth on its expenditure side, given the strong impact of household spending on GDP.
The overall trade balance also improved at the end of last year, as the total deficit shrank by £1.6 billion between the last two quarters of 2014 - the most since the fourth quarter of 2011. The ONS could not say exactly what the impact on overall GDP in the fourth quarter would be, but admitted it may have less of a negative impact than in the third quarter.
Upbeat forecasts
In its February forecast, the Bank of England (BoE) said it expected growth in the fourth quarter to be revised slightly upward to 0.6% after the final estimate. Further on, the BoE left 2015 annual GDP unchanged at 2.9%, but revised up 2016 growth to 2.9%, from the 2.6% estimated in its November forecast. It also said cheap oil should help boost real income and consumers' spending.
The National Institute of Economic and Social Research (NIESR) expects Q4 growth to have slowed down to 0.5%. But NIESR revised growth projections for the whole of 2015 up to 2.9%, from the 2.5% it had expected in November last year.
In 2016, NIESR expects growth to moderate to 2.3% as "the positive impact of the oil price shock dissipates and domestic demand growth softens." Weaker domestic demand should then be partly offset by stronger UK exports, which are expected to get a boost from a stronger global economy, NIESR expects.
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