Today's fourth-quarter GDP revision contains little news but may incline MPC waverers towards waiting for more data on the performance on the economy in early 2011 before voting for a rise in Bank rate.
Last quarter's GDP fall was revised down from 0.5% to 0.6%, mainly reflecting a larger decline in services output, concentrated in business services and finance. The change in gross value added excluding oil and gas extraction, however, remained at -0.5%.
The Office for National Statistics continues to claim that December's bad weather depressed GDP by 0.5% over the quarter, implying that the economy would have contracted by 0.1% in its absence – slightly more pessimistic than its previous interpretation that underlying economic performance was "flattish".
The view here remains that the ONS view is too bearish and that GDP was on course to rise by about 0.25% last quarter before the weather hit:
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A GDP estimate based on monthly output data for industry, services and construction (comprising 99% of GDP) rose by 0.4% in the three months to November from the previous three months – see chart.
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The average level of the monthly estimate in October and November was 0.1% higher than in the third quarter while November business surveys were signalling expansion in December.
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The expenditure measure of GDP, before incorporating ONS consistency adjustments, fell by -0.4% last quarter. The "official" GDP number is based mainly on output-side information at this stage of the estimation process but the expenditure figure may, on this occasion, be more reliable, suggesting underlying GDP growth of 0.1% – higher if the ONS estimate of a 0.5% negative impact from the weather is too low.
Despite the December weather hit, nominal domestic spending grew by 6.2% in the year to the fourth quarter – faster than in the five years before the recession (i.e. during the credit bubble) and above a level consistent with achievement of the 2% inflation target over the medium term.
A reasonable scenario remains that monthly GDP changes over January-March 2011 will mirror those in the three months following the weather-related slump in January 2010. This would imply a 1.1% GDP rise in the first quarter, assuming no further revision to the fourth-quarter estimate.
