–Detailed Figures On Q2 Income, Expenditure Not Published Until October
–BOE Runs Own Growth Data Series, Has Assumed Official Data Too Soft

LONDON (MNI) – The headline figures in the first estimate of second
quarter GDP, out Tuesday, are expected to show weak, or non-existent,
growth but policymakers are unlikely to place great weight on them.

After publishing its initial estimate Tuesday of output-based Q2
GDP, National Statistics – because of system and methodology changes –
will not fill out the detail on income and expenditure until October.

The Bank of England, meanwhile, will update its own forecasts and
“backcasts” of growth for its August Inflation Report, giving
policymakers an alternative growth series accompanied by a raft of
in-house analysis.

The official Q2 GDP growth figures will have been impacted by the
extra Bank Holiday in May, and the chance it provided for employees to
take an extended break, as the official data are not work day adjusted.

Also, the initial estimate of GDP is based on just 40% of the data
that makes up the final estimate.

For the BOE’s Monetary Policy Committee members, the initial,
official estimate of GDP is far from being the source of all wisdom on
what is happening to UK economic activity.

National Statistics has been working on a series of enhancements to
its GDP data – but the switchover to the new figures has led to a delay
in publishing the key income and expenditure figures.

The first figures on Q2 income and expenditure will not be released
until October 5, when the Quarterly National Accounts are out, meaning
a month’s delay to what would have been the normal date for
release.

That will leave BOE, and private sector, economists without any
official numbers until then on such key areas as household expenditure.

The MPC will, instead, by the time of its August meeting have
access to its own full set of updated growth and inflation forecasts,
and backcasts, which will underpin the Inflation Report and these will
be central to the committee’s thinking.

The BOE MPC has taken the view that recent official data has
underestimated UK growth.

George Buckley, economist at Deutsche Bank, notes that the BOE’s
May backcast of growth shows its estimates for growth on the quarter for
Q4 of last year and Q1 of this were both 0.2 percentage point above the
official quarterly growth rates.

The official data showed UK GDP fell 0.5% in the fourth quarter and
was up 0.5% in Q1, leaving it flat over the two quarters. The BOE’s
backcast, however, shows it down 0.3% in Q4 and up 0.7% in Q1, resulting
in very low, but still positive, growth over the two quarters combined.

In its May projections, the BOE’s implied forecast was for 0.3%
quarterly growth in Q2, with it then rebounding and rising 1.0% on the
quarter in Q3 before slowing to up 0.4% in Q4.

If the BOE makes a similar assumption in its August projections,
that National Statistics is underestimating growth by 0.2 percentage
point, the MPC view a 0.1% outturn in Tuesday’s official GDP data as
compatible with its previous 0.3% prediction.

The BOE appears to have factored in the likely impact of the Royal
Wedding Bank Holiday into its growth profile, with softer growth
expected in Q2 and then the Q3 rebound.

Some economists, including those at Citi and Scotia Capital, are
expecting negative Q2 GDP growth while those at JP Morgan expect it to
come in flat.

Such outturns would be below the BOE’s estimate, and generate a
raft of alarming media headlines.

Simon Hayes, economist at Barclays, says, however, that for the MPC
the key thing is the composition of growth.

If the weakness comes from consumption that is likely to prove much
more persistent than, say, weakness in stockbuilding.

The official data series, however, will leave the key questions on
consumption unanswered until October.

A clear take on how the BOE MPC views economic activity and the UK
outlook will come instead when it publishes its Inflation Report on
August 10, with its backcast and forecasts numbers out the week after.

The GDP data will be issued at 0830 GMT Tuesday.

–London Newsroom: 0044 20 7862 7491; e-mail: drobinson@marketnews.com

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