The Office for National Statistics has unexpectedly reduced its estimate for UK economic growth during the second quarter of 2011 from 0.2% down to 0.1%.
Basically the UK economy has now been in the doldrums for at least the last nine months.
One point to note is that the ONS has changed the way it produces some of its figures. For example it now uses the new Standard Industrial Classification (SIC) 2007 and the base and reference years for chained volume estimates has moved from 2006 to 2008.
Using the new methodology the ONS believes that the UK economy actually shrank during the recession by 7.1% and not the previously thought 6.4%. The good news though, was that it was three months shorter.
This has led to the economy now being 4.4% smaller than March 2008 when it was at its peak as opposed to the previously thought 4%.
This weakness in growth says the ONS reflects wider pressures across the economy.
It says that consumers have been hit by ‘continuing declines in real wage growth’, inflation and low returns on savings as well as having their confidence dented by employment uncertainty.
This has been exacerbated by the fact that our key export areas such as the US and Europe have been experiencing weakening economies.
UK household final expenditure fell by 0.8% in Q2. This is the fourth consecutive quarter that it has fallen.
This report may well put pressure on the Bank of England’s Monetary Policy Committee to look more seriously at more stimulus tomorrow, especially as some economists believe that they were expecting figures to be revised upwards. Although the services sector results and purchasing managers index, which were both better than expected may convince the committee to hold off any change for another month.
But what a time for the ONS to revise the way it produces its statistics. Why couldn’t it produce two sets for a couple of quarters so that they could be compared?
ONS report here.