UK out of recession but will be in a depression until 2012, economists suggest

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Written by Ray Clancy

Wednesday, 10 November 2010 10:14

Economic growth in the UK is close to trend but output is unlikely to pass its peak in early 2008 until 2012, according to economists.

Monthly estimates of Gross Domestic Product (GDP) suggest that output grew by 0.5% in the three months ending in October after 0.8% in the three months ending in September, says the National Institute of Economic and Social Research.

And the UK economy’s strong performance over the past seven months does not suggest a further round of quantitative easing is currently necessary, it believes.

In October the UK economy returned to a level last seen at the end of 2008. However, this still leaves the economy 3.6% below its pre-recession peak of March 2008.

The National Institute interprets the term ‘recession’ to mean a period when output is falling or receding, while ‘depression’ is a period when output is depressed below its previous peak. ‘Thus, unless output turns down again, the recession is over, while the period of depression is likely to continue for some time. We do not expect output to pass its peak in early 2008 until 2012,’ it says.

‘Our track record in producing early estimates of GDP suggests that our projection for the most recent three month period has a standard error of 0.1 to 0.2% point when compared to the first estimate produced by the Office for National Statistics. This comparison can be made only for complete calendar quarters. Outside calendar quarters the figures are less reliable than this and they are also likely to be less accurate in the current disturbed economic circumstances,’ it adds
A paper describing the methodology used to produce the data was published in the February 2005 volume of the Economic Journal. ‘From April until October 2006 our estimates were computed using the Index of Services published by ONS. However this monthly series shows considerable volatility which has caused us some problems in estimating GDP,’ it adds.

‘We have therefore reverted to using a model of private services output based on indicator variables. This means that, while all our figures for calendar quarters are fully coherent with ONS data, our estimates of monthly private service output are not. The series can be thought of as indicating the underlying value of the ONS series.