Revised figures show that GDP fell by 0.02% between the first and second quarters of 2008, having previously been estimated to have risen marginally. So the recession began in the second not third quarter of last year.
A monthly GDP estimate can be calculated using output data for industry and services, which together account for 93% of total activity. This peaked in April, implying that the recession began in May last year – see chart.
After a 1.6% plunge in November, monthly GDP fell by a further 0.4% in December, to a level 0.8% below the fourth-quarter average. In other words, GDP would decline by 0.8% in the first quarter even in the unlikely event of activity stabilising in early 2009. For comparison, the Bank of England’s central forecast implies a 1.1% first-quarter drop.
The expenditure breakdown is not particularly reliable at this stage but suggests that inventory liquidation accounted for much of the 1.5% fall in GDP in the fourth quarter. Domestic final demand contracted by a smaller-than-feared 0.5%, with a large – but presumably temporary – rise in government spending providing support.
The GDP price measures are also subject to significant revision but do not support deflation claims. The deflator for gross value added at basic prices – which corrects for the depressing effect of the VAT cut – rose by 1.2% on the quarter for a 3.6% annual gain. (See here for more on inflation.)
