The UK Economy…What's A 10 Basis Points Between Friends? A Whole Lot.

The difference between a technical recession and a downturn, while a fine-line, is huge, in terms of consumer confidence. After all, confidence is a major economic driver. With construction falling less than expected, If all other sectors remain the same, the UK will be one of the few economies that avoided falling into recession again.

The UK government revised its estimates of economic growth for last year. Of note, it found that the construction industry's output fell less than expected, which, impacted the overall economic output estimates for the UK economy. By making this adjustment, statistics indicate that economic growth was flat in the first quarter of 2012 as compared to falling 10 basis points as originally reported.

A revision by the Office for National Statistics (ONS) Suggests UK avoided double-dip recession last year.

Indeed, revised growth estimates now suggest the construction industry shrank in the first quarter of 2012, but by less than previously thought.

'While not totally out of the woods yet, this revision may be enough to mean the overall UK economy narrowly avoided falling into recession for a second time since 2008" said Steve Picarillo, the lead analyst for SJP Financial Advisors, which is part of Creative Advisory Group, Inc.

The revised figures show the construction sector shrank by 5% in the first quarter of 2012, less than the 5.4% contraction initially reported.

The ONS gives its final estimates for growth in June, and if other parts of the economy remain unchanged, the economy as a whole would register zero growth, rather than a contraction of 0.1%. This ever-so-slight difference of only 10 basis points can mean the difference between a “recession” and a “downturn”. While only 10 basis points and not all that significant in terms of the whole economy, the impact to the confidence level is much bigger. Consumer and business spending (and hiring habits)can vary significantly based on confidence, which trickled down to the whole economy, and have a bigger impact in the longer term.

"Recall, a country is in recession when the economy registers two consecutive quarters of negative growth. So, with this in mind, at this time it looks as though the UK has not formally been in recession" continued Steve. However, the ONS may also revise the growth of other parts of the economy when it publishes its final estimates in June, such as the much larger services sector, which may offset the gains in construction. So, it is too early to be sure if the UK actually skirted recession.

There is reason to pause, given that construction accounts for less than 7% of the UK economy, whereas the services sector makes up about three quarters of output. Despite this, the construction sector's weakness has been blamed for dragging down economic growth. The ONS figures showed that construction output fell again in the first quarter of 2013, reaching its lowest level in 15 years. Indeed, construction output was down 2.4% compared the last quarter of 2012.  While, output has fallen by nearly a fifth since the height of the construction boom in 2008. This is partly led by the fall in private-commercial, which accounts for approximately 22% of total Construction Output, and is now 38% below its peak in 2008 and at its lowest level since Q4 1997.  "Once again, we have to take a close look at the numbers as the preparations for the Olympics impacted certain statistics. Nonetheless, despite this, it is clear that construction output has been reduced, the key question is however, to other parts of the economy remain strong. More will be revealed in June" concluded Steve.

The ONS will publish the Quarterly National Accounts on 27 June, so more to follow.
The full report is at http://www.ons.gov.uk/constuction report.

 

About the company and author: 

Steve Picarillo is an internationally recognized financial executive, corporate analyst and author. Steve has spent most of his career on “Wall Street” as a lead analyst covering the world’s largest financial institutions. Mr. Picarillo’s rapidly expanding global consulting business, Creative Advisory Group, Inc., focuses on helping individuals and companies achieve their financial and business goals. In addition to a global banking expert, Steve is a franchise consultant, branding expert, motivational speaker, cost savings expert and an expert on the global economic environment. Steve’s website is www.stevepicarillo.com.

Company Name: SJP Financial for Creative Advisory Group, Inc.
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Source: www.abnewswire.com