(source: Simon Ward at Henderson New Star)UK GDP data exaggerates recession depth. GDP data is subject to major revisions for up to 30 months. UK revisions tend to be upward. A comparison with the last 3 cycle recessions suggest UK official estimate of a recent fall in GDP of 5.7% between Q1 2008 & Q2 2009 will be revised to show a much smaller decline. This view is supported by indicators, such as labour market stats, which, though worsening, is doing so less than expected per official GDP fall.
Bank of England has a "real-time" database of national accounts statistics that, for some series, including GDP, goes back to 1976. Based on recessions in 1974-75, 1979-81 and 1990-91, real GDP (after netting for consumer inflation) fell from peak to trough by 4.6%, 6.5% and 4.3% respectively. In the latest vintage of statistics, the falls are 2.7%, 6.0% and 2.5%. So revisions have cut the GDP drop by 1.9%, 0.5%, & 1.7%. The smallest of the 3 adjustments (1979-81) may be misleading because it coincides with major change to profile of the recession. The originally-estimated 6.5% GDP decline referred to the change between Q2 1979 and 3Q 1981 but recession trough subsequently shifted to Q1 of 1981. The latest statistics show a 4.6% GDP decline over the original recession period. A 6-month shift in start or end of recession estimate is not unusual e.g. the current US recession whose end was announced by Ben benranke today. It was originally thought to have started mid-2008 and then backdated to Winter 2007. UK recession was backdated too to having started in mid 2008 and is expected to end at end this year or early next year.
Paat comparisons indicate, however, that the current estimate of a 5.7% UK GDP decline by the second quarter of 2009 could eventually be revised down by as much as 1.9 percentage points. A simple model for GDP growth based on changes in vacancies and claimant-count unemployment suggests that, and at keast that a substantial downward adjustment is warranted. Tracking GDP rises and falls in the last three cycles suggests an annual decline of 3.7% in the first quarter of 2009 versus a current official estimate of 4.9%.
