–Q2 Income, Expenditure Data Delayed; Not Published Until October
–BOE Aug Forecasts Show MPC Assumes Official Growth Data Too Soft

–Repeating Version 1st Transmitted To Mainwire 1506GMT Tuesday Aug 23

LONDON (MNI) – The second estimate of UK second quarter GDP, out
Friday, could show the already minimal quarterly growth revised down,
but the Bank of England Monetary Policy Committee will attach little
weight to the numbers.

The BOE MPC’s August Inflation Report forecasts showed the MPC
believes National Statistics’ data are underestimating actual economic
growth and the second estimate of GDP will be less informative than
usual.

Due to system and methodology changes National Statistics
will not be coming out with its normal income- and expenditure-based
second estimate of GDP. Instead its second estimate will be based on
the output measure used in its initial take.

Analysts’ median forecast is for second quarter GDP to come in
unchanged from the initial estimate at up 0.2% on the quarter and up
0.7% on the year, but the risks are clearly to the downside. The handful
of analysts predicting any revision to the Q2 estimate all forecast a
cut of 0.1% in the quarterly rate.

The latest data revealed Q2 industrial production fell 1.6% on the
quarter, the largest fall since April 1991 and a shade below the 1.4%
estimate used to compile the Q2 GDP report.

That will have a small downward impact on Q2 GDP. Nick Bate,
economist at Bank of America Merrill Lynch says it will knock just 0.03
percentage points on the quarterly growth rate.

If the service sector growth also comes in weaker-than-expected,
with the June Index of Services issued alongside the Q2 GDP data, then
that would open the door to a downward revision.

The BOE MPC, however, has its own take on what is happening with
the economy.

The BOE’s August Inflation Report “backcast” of growth shows, on
Market News’ calculations, Q2 quarterly growth of 0.28%, followed
by 0.75% in Q3. That 0.28% growth rate represents what the MPC thinks
“true” growth was – and should match the figure National Statistics
arrives at once it has completed its long drawn out revisions process.

That will not be until October when National Statistics publishes
the Blue Book, which will have the detailed figures on income and
expenditure for Q2.

“That is when you tend to get the revisions coming through,” and
that is what the MPC will pay more attention to, says Bate.

In the meantime, the MPC has a lot else to worry about as the
latest phase of long running credit crunch unfolds.

“It’s (Growth) Levels, Stupid”

The MPC is, in any event, much more focused, in any event, on the
level of, and medium term outlook for, growth than on quarterly growth
rates.

Back in August 2009, after the publication of the August Inflation
Report, BOE Governor Mervyn King was explaining why market participants
were wrong to be surprised by the MPC’s decision to extend quantitative
easing by a further stg50 billion.

Citing the growth forecasts he said: “I think the big message today
from this … is – it’s levels, stupid. It’s not growth rates, it’s
levels that matter here. That’s what matters in terms of thinking about
the downward pressure on inflation in the medium term.”

Looking at the levels of GDP at present and going forward, based on
the Inflation Report forecasts, presents a stark reminder of just how
hard the UK recession has been.

UK GDP peaked in Q1 2008 and on the August MPC forecasts is set to
only get back above this level by Q3 2012, four and a half years after
growth first turned negative.

MPC member Martin Weale, in a speech back in June, pointed out
that the latest depression is set to be the most prolonged of the
industrial era.

The depressions starting in 1930 and 1979 each lasted 48 months
while the very severe 1920 depression lasted 45 months.

As Weale said, “the current period of below-peak (will be) quite
possibly the longest of the industrial age.”

Against that backdrop, whether or not Q2 GDP is left unchanged or
revised down by 0.1 percentage point is very small beer indeed.

The GDP data will be issued at 0830 GMT Friday.

–London Newsroom: 0044 20 7862 7491; email: drobinson@marketnews.com

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