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Thursday, 24 May 2012

GDP figures revised downwards

The economy contracted by 0.3% instead of the 0.2% that the ONS originally said.  Many economists and analysts, including us at the time, said that this did not reflect the true state of the economy and that demand was holding up.  The evidence from the surveys which covered business confidence and purchasing statistics seemed to back up this view.  However, it was the very sharp contraction in the construction sector that has skewed the statistics and some have observed that demand has held up but stocks have been run down by firms in anticipation of weaker demand.

This latest news will mean that there will be further pressure on the Bank of England to restart QE and some on the committee will be mindful of the IMF's suggestion that interest rates could be cut further.

All this is also bad news the coalition as they try and  stimulate growth.

2 comments :

  1. If GDP contracted because firms ran down stocks, but demand is holding up, then GDP will increase in the next quarter as firms need to rebuild those stocks. So, shortlived crisis?

    ReplyDelete
  2. Agree that is what the policy makers are hoping. The Eurozone crisis is the tail that is wagging the dog at the end of the day!

    ReplyDelete

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