"The recent revisions to the GDP figures will make it necessary for the BCC to reduce its growth forecast for 2005, from 2% to 1.7-1.8%. The new GDP figures show much weaker growth over the past year than previously estimated. The four-quarter growth rate in Q2 2005 was revised down by the ONS, from 1.8% to 1.5%. This downward revision to the annual GDP growth rate mainly reflects lower growth in key areas of the services sector and in construction. The new figures also confirm that the manufacturing sector remains in negative territory when compared with a year earlier, and has been in technical recession this year."
"The new figures are very disappointing, but not entirely negative. Although growth in 2005 will be lower than expected, there is also evidence that the low point of the sharp economic slowdown was in Q1 2005, and a modest improvement occurred in Q2, albeit from a lower base than previously thought. For 2006, our GDP growth forecast remains at 2.2 %"
David Kern concluded: "The new GDP figures indicate that there is more spare capacity in the economy than the MPC thought previously, and we hope that this will make it easier for the MPC to take a more accommodating stance. With CPI inflation at 2.4%, the MPC may find it difficult to cut rates immediately. But, once the impact of higher petrol prices wears off, it will be critically important for the MPC to act resolutely, so as to support activity and business confidence."