Chris Williamson comments on today’s GDP data from the ONS
Chris said: “The economy grew less than first thought last year, but the estimate for the fourth quarter was left unchanged at 0.7% and the details of the latest release bode well for stronger growth in 2014.
“The Office for National Statistics now estimates gross domestic product rose by 1.8% in 2013 compared to its initial estimate of 1.9%. That was nevertheless still its best year of growth since 2007, when an expansion of 3.4% was recorded.
“The downward revision reflects weaker than previous growth in the first half of the year, which brings the GDP data more into line with survey data, which had presented a less perky start to 2013, leaving a strong picture for the second half of the year, during which the expansion was fueled by business investment, higher incomes, rising profits, exports and ongoing growth of consumer spending.
“Economists have been busy revising up their forecasts for 2014, with the Bank of England in a particularly bullish mood, expecting growth of 3.4%. Such optimism is looking warranted, given the current strong survey data, and the details of the fourth quarter GDP report.
“Key to the improved performance of the economy is whether companies will unleash their pent-up cash reserves and embark on a long-await investment spree. Economic uncertainty and credit constraints have discouraged investment and expansion since the financial crisis struck, but the improved outlook at home and abroad means the environment is now more conducive to investment and risk taking. The latest data show this is already taking place: investment (as defined by gross fixed capital formation) surged 2.4% in the final three months of last year, building on consecutive increases in each of the prior three quarters. Investment stood 8.5% higher than a year ago as a result.
“The upturn in investment should continue in coming months. Survey data show new orders for investment goods, a leading indicator of actual investment spend, rising at the fastest rate fro two decades in recent months.
“For all the talk of a consumer-led recovery, consumer spending rose a modest 0.4% by comparison in the fourth quarter, down from 0.9% in the third quarter. However, the consumer should provide additional support to the recovery as we move through 2014, with the improving labour market, lower inflation and a buoyant housing market setting the stage for higher consumer spending. Households are the most optimistic about their future finances than at any time since the recession struck, and wages are showing signs of picking up, according to recruitment agency surveys. The GDP data showed compensation of employees rising 0.5% in the fourth quarter, up 3.9% on last year.
“Exports are also beginning to pick up as growth revives in the eurozone.
“This year should therefore be the best we have seen since the financial crisis for economic growth, but the need to tighten policy in 2015 means growth is likely to slow thereafter.
“In the detail, growth of industrial production was revised down in the fourth quarter from 0.7% to 0.5% (with manufacturing output revised down from 0.9% to 0.7%), but construction was revised to show an increase of 0.2% against a prior estimate of a 0.3% decline. Services output was left unchanged, showing a 0.8% increase.
“The upturn in output across the three main business sectors led to a commensurate increase in profits, which rose 6.6% in the final three months of the year, up 4.4% on the same period a year ago.”
