UK Q1 GDP: it's not great, but it's not "flatlining"

Anyone care to parse this sentence, taken from today's "Independent"?

Sluggish GDP growth of 0.5% between January and March reverses a shock decline at the end of 2010 which is likely relieve pressure on Bank of England to raise interest rates in the face of soaring inflation.

Just how many years of education does it take to learn to write like that? Still, though that may be the worst piece of "analysis" of today's GDP data, it's not just the subs at the Indy who have struggled to present the data properly. BBC News 24 says that the economy grew in Q1 for the first time in six months, which makes it sound as if output fell in Q3 as well as Q4/2010, which it didn't. Even the normally-reliable Jeremy Warner at the Telegraph has succumbed. His blog says the UK "economy has gone nowhere for six months. It has flatlined, or plateaued".

That's a very misleading description, except in the very specific statistical sense that the gain estimated for Q1 exactly matches the decline seen in Q4/2010. However, the weakness in Q4 was entirely concentrated (as far as anyone can tell) in December, when the weather was so disruptive. That's significant because it means that GDP in December was well below its average for the whole of Q4. That in turn means that it required a sharp bounce back at the start of Q1/2011 just to get the economy back to the Q4 average, so 0.5% average quarter-to-quarter growth is not to be sneezed at. Far from "flatlining" or "on a plateau", it's likely that the economy grew in October and November, nosedived in December, and has grown in each month of Q1 -- which is five months of growth out of the last six.

Today's data will no doubt be revised, and there's some suggestion that the revisions may be upwards. The reported sharp fall in construction activity in the quarter has been greeted with surprise by the industry itself. The more important question, however, is what happens next. The plethora of bank holidays (Easter, Royal Wedding etc -- five in total) may exert some downward pressure on Q2 output, though these effects generally tend to be less than expected, and the fact that the holidays are concentrated in the first half of the quarter, so to speak, will further limit their impact. Announced production cutbacks at the Japanese car plants will also have some impact, though as none of the workers will be fully idled,the effect of this on overall GDP is difficult to predict.

And then, of course, there's the government spending cuts to worry about. Despite all the heated rhetoric from Ed Balls et al about how the government's fiscal tightening has been strangling the economy, it's only from this quarter on that actual spending restrictions really start to kick in. (The recent fiscal data from the ONS showed that government spending actually rose in March, though of course debt servicing was a big part of that). Once the Royal Wedding hoo-ha dies down, the national mood may take a turn for the worse, putting a crimp in consumer spending in particular. There's still no reason to fear the dreaded double-dip recession, but the next few months, like the recent past, may be more roller-coaster than flatline.