UK GDP: Should have gone to Specsavers?

July 23, 2010
twice as fast as expected in the second quarter of this year propelled by a sharp pick-up in services and the biggest rise in construction in almost 50 years.

Markets are getting used to volatile swings in economic data since the financial crisis set in three years ago. But UK GDP figures for Q2 were so eye-poppingly strong they caused confusion on trading floors.   


“Should have gone to Specsavers??” wrote Philip Shaw, chief economist at Investec, referring to British television commercials lampooning myopic citizens who desperately need a new pair of corrective lenses.


“Perhaps critics will suggest that the ONS has got it wrong again, but traders’ initial suggestions, calling into question the accuracy of the newswire reports — and this author’s eyesight — proved to be misplaced,” wrote Shaw.


The 1.1 percent quarterly growth the Office for National Statistics reported for Q2 was nearly double the 0.6 percent Reuters consensus forecast and blew out the highest forecast polled, 0.8 percent, by a significant margin. The fact it came a half hour after news the German Ifo index saw its biggest one month surge since reunification in 1990 made it all the more shocking.


It eased fears of a double-dip recession. But does this mean this kind of growth will be sustained into the second half? Shaw isn’t so sure, and neither are many other analysts — analysts who all got this one wrong.


Construction in the UK may decline in the third quarter and it is clear that the manufacturing boom in Britain and in Germany can’t continue at this rate. In fact, the charts look a lot like they did before the post-dot-com bust as well as the onset of the financial crisis in 2007 and subsequent Great Recession.


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