Crisis in UK ‘worse than previously believed’

Published: 30 June 2013

LONDON - Britain suffered a much deeper recession in 2008-09 than first thought and the economy remains further from recovering its pre-crisis size, according to sweeping revisions to official data.

Revisions to years’ worth of gross domestic product (GDP) data by the Office for National Statistics have also erased the UK’s so-called double-dip recession. GDP is now estimated to have stayed level between the fourth quarter of 2011 and the first of last year, rather than falling 0.1%.

George Buckley, economist at Deutsche Bank, said the consignment of the double dip to history was "just about the only good news" in the figures. He dubbed the GDP revisions "hideous".

The statistics office now thinks the economy shrank 7.2% from peak to trough in the financial crisis, more than its previous estimate of 6.3%. It also believes the economy remains 3.9% smaller than at the peak. Before the revisions, it thought the economy was just 2.6% smaller.

One of the reasons for the far sharper and faster contraction was a much bigger fall in business investment in 2009 than previously thought.

The UK economy was also hit much harder by the collapse of US investment bank Lehman Brothers in 2008.

The Office for National Statistics said better data on corporate profits show the effect of Lehman’s bankruptcy on UK businesses was much worse than thought at the time. The revisions show problems for UK productivity are worse than thought.

The economy remains a long way below its pre-crisis peak, but employment is near a record high. This suggests workers are now much less productive than before the crash.

The statistics office maintained its initial estimate that the economy grew 0.3% in the first quarter of this year. Encouragingly, Thursday’s estimate showed net trade was a main driver of growth.

But real household disposable income fell 1.7% in the first quarter, the sharpest quarterly fall since 1987, as inflation ate away at wages that were already falling in cash terms. Undaunted, consumers continued to increase their spending in the first quarter.

- Financial Times