A post in December suggested that UK GDP would grow by about 2% in 2013. This was based partly on a simple forecasting rule-of-thumb that judges prospects for the coming calendar year to be “good” if both real money growth and share prices are higher than a year before. This condition was met at the end of last year for the first time since December 2005. Historically, growth has averaged 4.1% in years following such a signal – see the earlier post for details.

The current consensus is for growth of only 0.8% this year, according to the Treasury’s monthly survey of forecasters. 2% expansion is, on the face of it, out of reach. Current official statistics show that GDP in the first quarter was only 0.4% above the 2012 level. This implies that it would need to rise at a 4.1% annualised rate over the remaining three quarters to produce full-year growth of 2% (assuming an equal increase in each quarter).

Such arithmetic, however, is misleading because it ignores the potential for upward revisions to current official data. Quarterly GDP changes over 2009-11 (i.e. three years) have so far been revised up by an average of 0.18 percentage points since first reported. Assume that the initial estimates since the first quarter of 2012 are upgraded by the same amount. The first-quarter level of GDP would then be 0.8% above the 2012 level, rather than 0.4%. The economy would need to expand by “only” 3.0% annualised over the remaining three quarters to produce a full-year increase of 2%.

A further reason for retaining the 2% full-year forecast is the possibility of an outsized second-quarter GDP rise. Based on current official information, the March level of GDP was 0.25% above the first-quarter average*. Construction output was hit by poor weather in early 2013 and is likely to bounce back in the second quarter – a return to fourth-quarter activity would raise GDP by 0.35 percentage points relative to its March level. If the rest of the economy expands by 0.1% per month, GDP could rise by 0.8% this quarter (i.e. 0.25 carryover effect plus 0.35 construction boost plus 0.2 trend growth).

A 0.8% second-quarter gain, combined with the suggested upward revisions to earlier data, would imply a required growth rate of 2.6% annualised during the second half of 2013 in order to achieve 2% expansion for the year.

The suggested scenario would involve GDP growth of 2.6% between the fourth quarters of 2012 and 2013. This is not unrealistic: GDP rose by 2.4% in the year to the third quarter of 2010 and recent money supply expansion has been faster than in 2009-10.

*Based on actual industrial and construction data and the official assumption for March services output incorporated in the preliminary first-quarter GDP estimate.