London Briefing: Halving of growth rate is last thing Cameron needed

A halving of the economic growth rate is the last thing a government needs with an increasingly hard-fought election just nine days away.

Prime minister David Cameron was putting a brave face on Britain's latest GDP data yesterday but an unexpectedly sharp slowdown in growth from 0.6 per cent to 0.3 per cent over the first quarter deals a severe blow to his party's hopes at the polls on May 7th.

Speaking in the marginal constituency of Enfield in north London, the latest stop on his election campaign tour, Cameron admitted reluctantly that the economy was performing in a “less exciting way”.

However, the growth rate was, he claimed, still something many other European countries “would give their eye teeth for”. And, in an attempt to make the best of the bad figures – the weakest since the final quarter of 2012 – he used the slowdown to highlight the risk of worse to come if Labour were to win next week.

“These figures demonstrate that you’ve got insecurity and instability all over the world, including on our doorstep in Europe. So I would say to people: given that, don’t vote for instability and insecurity here at home. Stick to the plan that is delivering the growth, delivering the jobs.”

Economic news

The growth figures are the final major piece of economic news to be published before Britain goes to the polls. There was little mention by Cameron or his chancellor

George Osborne

of the success of the “long-term economic plan”, a phrase the Conservatives regularly trot out to accompany any items of upbeat data.

Not surprisingly, opposition parties leapt on the figures, which came in well below most economists' expectations. Labour leader David Miliband said that, while the government had been "doing a victory lap", the British people had been left behind and the economy had not been fixed.

Growth in services slowed sharply from 0.9 per cent to 0.5 per cent. The steepest decline came in business and financial services, with growth of just 0.1 per cent against 1.3 per cent previously. The annual growth rate came down to 2.4 per cent, compared with 2.8 per cent in 2014.

But just how reliable are the figures? The Office for National Statistics (ONS) traditionally publishes data for the nation’s economic performance less than a month after each quarter ends, which means Britain is usually the first of the major economies to report.

What is gained in speed is often lost in accuracy, however. Based on just half the required data, the initial figure is no more than an estimate of the growth rate and will be subject to two potentially major revisions before the final figure is given in June. Even after that data can be fine-tuned for several years, as seen with the “disappearing double dip” recession at the start of 2012.

Much was made of Britain’s slide back into recession in the first quarter of 2012, a dip that would later put the economy on course for a triple dip downturn. But in June 2013 the ONS calculated that was never a double dip and, instead of a fall of 0.1 per cent, the economy was flat during the quarter.

The Great Recession of 2008/09 was also revealed to have been shorter and shallower than first thought – but not until five years later. In 2014 the official statisticians said the “peak-to-trough” fall in GDP in the longest and deepest downturn since the war was actually around six percentage points rather than the 7.2 initially reported.

Estimates

Economist

Martin Beck

of the EY Item Club reckons the reliability of the data has been “particularly poor” of late. He calculates that of the 16 preliminary estimates published between the second quarter of 2010 and the first quarter of 2014, only six quarters show the same growth today.

Of those quarters five show a growth rate that is at least 0.2 percentage points different to the first estimate. More often than not, he says, the revisions were upward. He expects that to be the case for yesterday’s figure too.

But any upward revision will come to late to provide the pre-election boost the government will have been hoping for.

Whoever wins the election may well want to consider ordering the statisticians to sacrifice some of the speed of their initial growth estimates in favour of more reliable results.