Bespoke Mortgages

Insider's View

17th August 2009

Statisticians pull another rabbit out of the hat

By Barry Naisbitt, Chief Economist, Abbey

If the big economic news in June was the unexpected markdown in GDP for the first quarter of the year by the official statisticians, they had more surprises in store for us in July.  Recall that previously we had believed that output fell by a very deep 1.9% in the first quarter and that since the start of the recession output had fallen by 4.1%.  That fall would have made it deeper than the recession at the start of the 1990s.  Now we have been informed that output fell by a staggering (if a 1.9% fall is not eye-catching enough) 2.4% in the first quarter.  This makes it the largest quarterly fall in GDP for over half a century.  With revisions to other data, it meant that GDP had fallen by 4.9% from its peak level early last year – about twice the fall seen in the early 1990s.

Economists had seized on survey indicators of output from manufacturing, construction and services industries as the second quarter progressed to come to expect another fall in total output in the quarter, but a very much smaller one.  On the day of the announcement, the consensus expectation was for a reduction of 0.3%.  While output would still be falling, it would be falling at a much slower pace and raising the hope that the third quarter might see an even smaller fall.  In some ways this is version of a view about the so-called ‘green shoots’ – things get worse less quickly, then stabilise and then improve. 

Well, once again the Office for National Statistics created a bit of a stir by announcing a fall of 0.8% in GDP in the quarter.  While this is only the first, provisional estimate, it is worse than expected.  However, it still shows that the very steep pace of the fall in GDP was somewhat arrested in the quarter.  On past form, of course, we can expect this number to change, although in these uncertain times we cannot be sure quite how it will change.  Only time will tell.  But in the meantime it looks as if the interpretation of the survey indicators was a bit too optimistic – but certainly in the right direction. 

The recent figures for the housing market figures have been less surprising.  The rise in new buyer enquiries reported in the surveys from the Royal Institution of Chartered Surveyors has continued and the level of house purchase approvals, though very low, turned higher than a year ago in May.  Approvals rose further in June, with house purchase approvals up 8% in the month to a level 35% higher than a year earlier.  While that sounds dramatic, it is more a reflection of the very low levels reached last year than a high pace of activity now.  Indeed, activity is now somewhere about half of what it has averaged over the past five to ten years. 

But the change from a downtrend to an uptrend is positive for the market and is starting to be echoed in more mixed reports on monthly house price changes.  It is still far too early to conclude that, for example, house prices will not fall further or that approvals will keep rising – we are, after all, still living with a unique monetary and fiscal policy mix in many countries and much uncertainty remains – but recent months have been encouraging for housing market activity after the severe experience last winter.