World Economic outlook : Britain economic outlook first quarter 2012 : Britain’s economy may have shrunk more than previously estimated in the first quarter after the statistics office reported a deeper slump in construction.
Building output plunged 4.8 percent in the three months through March, the Office for National Statistics said today. That compares with a 3 percent drop in the first estimate of gross domestic product on April 25, which showed the economy contracted 0.2 percent. The revision on its own would shave 0.1 percentage points off GDP, the statistics office said.
The building data may add to concerns about weakness in the U.K. economy as it grapples with a double-dip recession. Bank of England policy makers hadn’t seen the revision before their decision yesterday to halt their quantitative-easing program at 325 billion pounds ($524 billion), according to statistics office officials.
“The lazy assumption was that because GDP was drastically below forecasts, it would go up with subsequent revisions,” said Alan Clarke, an economist at Scotia Capital in London. “The economy was in the eye of the storm in the fourth and first quarters.”
The quarterly drop in construction, which accounts for 8 percent of GDP, was the biggest in three years. The report also showed that from a year earlier, building output was down 3.7 percent.
Revision Impact
Based on the initial estimate, construction reduced first- quarter GDP by about 0.2 percentage points. That’s now been revised to “just over” 0.3 percentage points, officials said, indicating the economy would have been flat without the construction impact.
The second estimate of the first-quarter GDP data will be published on May 24.
The Bank of England announced yesterday that it will leave its bond-purchase target unchanged after seven months of pumping money into the economy. It also kept its benchmark interest rate at a record-low 0.5 percent.
Some policy makers have signaled increased concerns that inflation won’t slow as much this year as previously projected.
Data today showed factory-output prices increased 0.7 percent in April from March, exceeding the 0.4 percent median forecast of 19 economists in a Bloomberg News survey. From a year earlier, prices were up 3.3 percent, also faster than forecast. Input prices fell 1.5 percent from March and were up 1.2 percent from a year earlier.
Prices Increase
“Elevated oil prices are impeding the retreat in inflation,” said Howard Archer, an economist at IHS Global Insight in London. “At the same time, manufacturers face an on- going need to price competitively to try and gain, or even retain, business in a still challenging environment.”
In the 10 categories of producer price, nine rose and one fell in April from the previous month, today’s report showed. The biggest gain was by computer, electrical and optical equipment, which rose 2.4 percent, followed by tobacco and alcohol, up 2.2 percent.
Core producer prices, which exclude costs of food, alcohol, tobacco and petroleum, increased 0.6 percent on the month in April and 2.3 percent from a year earlier.
While inflation concerns are elevated, economists at Deutsche Bank AG and BNP Paribas SA say Bank of England Governor Mervyn King may leave the door open to add more stimulus at a press conference next week.
He will probably lower U.K. growth forecasts in the central bank’s Inflation Report on May 16, they said, giving policy makers leeway to restart QE again.
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