UK economic growth 'understated'

BRITAIN'S economic recovery is far stronger than official figures show, according to an influential economic forecasting unit.

The Ernst & Young ITEM Club's latest economic update has warned that the Office for National Statistics (ONS) is understating UK economic growth and that the official output data will be revised up in the next official estimate on 30 June.

'The official data have been lagging the upturn and will surely be revised up over the summer,' said Peter Spencer, chief economic adviser to the ITEM Club.

Accurate economic data are essential to Bank of England monetary policy committee decision-making. Stronger than expected economic growth may persuade it to raise interest rates quicker in a bid to cool the economy.

ITEM argues that nearly recent business surveys in the UK have been positive, with order books full and exports at a 10-year high.

Two weeks ago, the Confederation of British Industry said it expected the economy to expand by 3.2% this year, up from an earlier estimate of 3%. For 2005, its forecast is raised from 2.8% to 3%. It said strong consumer spending - fuelled by low unemployment, rising pay, willingness to borrow and a strong housing market - was driving the economy.

The ITEM club also pointed to robust High Street spending, rising house prices and strong recruitment in the City.

With such a positive economic backdrop, it believes ONS preliminary reports suggesting that UK GDP rose by only 0.6% in the first quarter of 2004, down from 0.9% the quarter before, is too low.

The ITEM Club uses the Treasury's own forecasting model – hence the title Independent Treasury Economic Model – to judge the state of the UK economy.