The British economy flatlined through 2011 and 2012 and took many by surprise in 2013 by recording four quarters of growth, to return 1.9 percent growth for the year and 0.7 percent for Q4.
This is a strong jumping off point for 2014, but the growth could be stronger still.
The official figures from the government statistical body, the Office of National Statistics (ONS), are revised months after release as firm data becomes available to fill in the assumptions the statisticians are forced to make in order to deliver an early growth figure.
So, the size of these revisions, up or down, can affect the forecasts that economists make for future growth.
The central bank, the Bank of England (BOE), currently forecasts strong growth for 2014, at 3.4 percent, against a historical trend growth of 2-2.5 percent. With this prediction they are well ahead of many other economists, whose consensus is around 2.4-2.7 percent for the year.
Deutsche Bank UK chief economist George Buckley, said there was a tendency for upward revisions to be made to economic growth «when the economy is doing well», and that the BOE «backcasts» previous estimates of GDP.
Buckley said the BOE expects revisions to the current vintage of ONS estimates, with the current estimate of Q4 2013 GDP at 2.7 percent year on year, expected by the BOE to be revised up to 3 percent.
Buckley said, «Because the Bank assumes that economic growth will be revised up at the end of last year, the stronger carry over into 2014 allows them to forecast a far higher rate of growth for this year than other forecasters — 3.4 percent compared to our own view and the average of independent forecasters of 2.7 percent.»
Buckley said that when the GDP growth data and forecasts were compared with the Markit/Purchasing Managers’ Index (PMI) figures, Markit concluded that there was a strong correlation that suggested a similar growth in Q1 this year to Q4 last year.
Within PMI readings over the past months employment readings are high, and inflationary pressures captured in input and output prices are low.
This is favorable weather for economic strength, and growth looks set to continue. But by how much?
Buckley pointed out that the PMI figures indicate growth of 0.7/0.8 percent per quarter, the average for quarterly growth in 2013.
Buckley explained, «It suggests that, based on the current PMI reading of 58.2, growth will be initially reported at around 0.7/0.8 percent q-o-q and be eventually revised up to around 1 percent q-o-q.»