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GDP growth to be revised upwards

Published 12/06/2015

Growth figures for last year are likely to be higher than previously estimated
Growth figures for last year are likely to be higher than previously estimated

The UK's economic growth in 2014 looks set to be revised up sharply to 3.1% after major changes to official figures from the construction sector.

Gross domestic product (GDP) last year was previously thought to have increased by 2.8% but the Office for National Statistics (ONS) now looks likely to hike the figure later this month.

New data and changes to methodology mean the performance of the construction sector, which represents 6.4% of GDP, has been revised upward for every quarter of last year and for the first three months of this year.

It is likely to mean overall economic growth at the start of 2015 was not as sluggish as previously thought, implying it will go up from 0.3% to 0.4% all else being equal, according to the ONS.

Revisions to GDP data will be confirmed on June 30. These will take into account the construction revisions but also any revisions there may have been to data from other parts of the economy.

The construction changes show that in the last quarter of 2014, the sector grew by 0.2%, against a previous estimate that it shrank by 2.2%. In the first quarter of this year it shrank by 0.2%, not by 1.1% as previously thought.

In April, the construction sector shrank by 0.8%, however, reversing an expansion of 1.4% in March.

Samuel Tombs, of consultancy Capital Economics, said: "Today's UK construction output figures vindicate our view that recent official estimates of GDP growth have understated the strength of the economic recovery."

GDP growth at 3.1% would be the strongest in more than a decade, topping the rate of 3% seen in 2006. It was last higher, at 4.3%, in 2003.

The sharp changes to the construction data come amid ongoing changes to the way it is calculated.

The ONS has acknowledged "statistical uncertainty" surrounding the results and has now moved to an "interim solution" judged to be a better alternative.

April's data contained some positive news for the sector, with a 5.4% increase in new housing the best growth since January last year.

However the overall sector was down on the month with repair and maintenance work shrinking by 4.8%, its steepest fall since the end of 2012.

Markit chief economist Chris Williamson said: "The UK economic upturn over the past year has been stronger than previously thought after substantial data revisions show that the construction sector has not acted as such a drag on the economy.

"The revisions bring the economy's performance more in to line with recent survey evidence. Our expectation is that building activity, and growth in the wider economy, will continue to revive in coming months."

But he added that the strong pound and prospect of rising interest rates "will probably mean 2015 growth fails to match the impressive 3.1% expansion that the ONS now estimates was seen in 2014".

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