Is the recession definitely over?

http://news.bbc.co.uk/go/rss/-/1/hi/business/8478419.stm

Version 0 of 1.

By Anthony Reuben Business reporter, BBC News

Tuesday's figures showing that the UK economy, measured by gross domestic product (GDP), grew by 0.1% in the last three months of 2009, mean that the UK is now out of recession, but we are not definitely out of the woods yet.

This number is only the preliminary figure from the Office for National Statistics (ONS).

The ONS will publish two more figures in the coming months, which may be very different to the preliminary one, so there is a chance that GDP could be revised downwards making it negative again.

The first revision to the figures will be released on 26 February and there will be another release on 30 March.

The graph below shows the difference between the preliminary number and the second revision (published three months after the end of the quarter) for each quarter since the beginning of 1993.

In the 67 quarters covered by the graph, there has been no change 22 times, a change of 0.1 percentage points either way 31 times, 0.2 percentage points 11 times, 0.3 twice and in the first three months of last year there was a revision of half a percentage point.

The ONS says that revisions are to be expected and they are a result of a trade-off between the need to publish an indication of the state of the economy as quickly as possible and the difficulty of doing so before all the data is available.

In principle, the ONS can continue revising GDP for as long as it likes, so there is no final figure.

In June 2009, for example, the ONS decided that GDP in the last three months of 1995 had grown by 0.5% and not 0.4% as it had previously thought. Earlier revisions had taken it as high as 0.8%.

Twice in the period covered by the graph above, there have been upward revisions of 0.9 percentage points between the preliminary figure and the latest figures: in the final quarter of 1998 and the first quarter of 2001.

But the ONS says that changes made more than two years later are generally a result of changes to the way GDP is calculated, so have nothing to do with the actual strength of the economy during the period.

So the preliminary figure is not a poor indicator of the state of the economy.

It is taken from returns provided by 40,000 businesses for the first two months of the quarter and 20,000 businesses for the third month, together with a certain amount of informed guess work.

As they move to the later figures there is less forecasting and more actual results.

Tuesday's figure of 0.1% growth is a small amount, and it could well disappear when more information is available, although the ONS stresses that it is just as likely to be revised upwards as downwards.