Notwithstanding the upside surprise in Q1 2013, the strength of the UK recovery has consistently disappointed expectations over the past three-and-a-half years. GDP remains more than 2.5% short of its early-2008 peak and is around 15% below the level it would have been, had the pre-recession trend continued. Around a third of this gap could be attributed to permanent damage caused by the financial crisis, while a similar amount of the shortfall can be attributed to weak demand caused by austerity, tight credit conditions and the impact of the eurozone crisis. However, this still leaves a sizeable gap unaccounted for and in our view, the strength of other indicators would suggest that there is a good case that the level of GDP has been under-reported.
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