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GDP growth not the full story says E&Y 23 May 2013

UK gross domestic product grew 0.3% in the first quarter of 2013, according to the Office of National Statistics (ONS) in its latest update.

The services sector was the driving force behind the growth, with 0.6% growth during Q1 2013 – an increase of 0.2% since March – adding 0.4 percentage points to GDP growth. May’s figure from the ONS is unchanged from the initial estimate it gave in April.

However, experts warned that the underlying story behind the figures was less impressive and cooled some of the recent optimism around the recovery.

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said: “There is no sign of any underlying strength in the economy, as without a large contribution from stockbuilding, the economy would have contracted in Q1.”

With the avoidance of a triple-dip recession following the Q4 2012’s 0.3% decline, inventory levels and consumer spending have both increased.

The construction market continues to struggle, which a contraction of 2.4% in Q1 2013, which had a negative contribution of 0.2. percentage points to overall GDP growth.

Trade and export also suffered, with exports contracting 0.8% and imports by 0.5%.

However, Goodwin says there is cause for optimism, as it “looks as if Q2 growth will be firm and possibly even stronger than Q1.”

“We are still optimistic that the momentum will build, but this data reinforces the idea that this recovery is going to be a long, hard, slog.”

The figures come a day after the International Monetary Fund urged the government to focus on policies to stimulate growth and continue austerity measures.



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