Is Osborne leading us to a double- or triple-dip?
The OECD and OBR disagree about whether the UK economy is back in recession.
In its latest interim assessment (pdf) of the outlook for the G7 economies, published yesterday, the OECD says the UK is in recession (based on the definition of two consecutive quarters of falling real GDP).
According to the Office for National Statistics’s revised national accounts data (pdf) real GDP shrank by 0.3 per cent in the final quarter of 2011 and the OECD thinks it will shrink by a further 0.1 per cent in the first quarter of 2012.
In its latest forecast (pdf), published alongside the budget, the Office for Budget Responsibility (OBR) is more optimistic. It believes the economy expanded by 0.3 per cent in the first quarter.
It is odd that the OECD and the OBR have such different forecasts, given both tend usually to be close to the consensus. On this occasion, it looks like it is the OECD that is out on a limb.
When forecasting recent developments in the economy, economists often look at surveys of business confidence, which are quite reliable indicators of short-term fluctuations in activity. Recent surveys in the UK show an improvement and are consistent with an increase in GDP in the first quarter.
The disagreement between the OECD and the OBR has been portrayed as a dispute about whether the economy is experiencing a double-dip recession or not. But perhaps we should be talking about a triple dip.
The revised GDP data from the ONS show GDP fell by 0.5 per cent in the final quarter of 2010; increased by 0.2 per cent in the first quarter of 2011; and then fell by 0.1 per cent in the second quarter. But the atrocious weather in December 2010 is reckoned to have deducted 0.5 per cent from GDP in the final quarter of 2010.
Adjust for this effect and there was no growth in the final quarter of 2010, followed by contractions in GDP of 0.3 per cent in the first quarter of 2011 and 0.1 per cent in the second.