UK economy shrank less than thought in 2008-09 recession - ONS

LONDON (Reuters) - Britain’s economy suffered less than previously thought during the 2008-09 recession, new figures showed on Monday - although this partly reflects weaker growth just before the financial crisis.

The Corus steelworks at Redcar, Teesside, northern England is seen in this January 26, 2009 file photograph. REUTERS/Nigel Roddis/Files

The Office for National Statistics is revamping how it calculates the size of Britain’s economy, and on Monday it published new estimates of annual growth in gross domestic product from 1998 to 2009.

The biggest changes were for 2007 and 2009. For 2007, GDP growth was reduced to 2.4 percent from 3.4 percent, turning one of the strongest years of the decade into one that was average.

By contrast, in 2009 - when the economy was thought to have shrunk by 5.2 percent - output in fact declined by only 4.1 percent. The year still remains by far the worst for Britain’s economy since at least World War Two.

Taking the changes together, GDP in 2009 now appears to be 5.2 percent lower than it was in 2007, compared with an earlier estimate of 6.0 percent lower, said Daniel Vernazza, an economist at UniCredit.

“The new measures had the effect of smoothing the business cycle,” he said.

The revisions reflect European Union-wide changes in what is considered the best way to represent the size of the economy -for example, by treating corporate research as output rather than a cost. It also includes more eye-catching changes, such as estimates of the activity of prostitutes and drug dealers.

Figures for more recent years are due in September.

Overall, the average annual rate of growth between 1998 and 2009 was unchanged at 2.2 percent, the ONS said.

But the significant changes to some years might have led the Bank of England to make different decisions on interest rates if the new figures had been used at the time, said Michael Saunders, chief UK economist at Citi.

“Policy might well have been more appropriate had the initial ONS data been more accurate or the (BoE been) better able to anticipate future revisions,” he said.

“All this is a useful reminder that policymakers and investors have to take account of possible future revisions -which may take years to come through - when assessing UK GDP data,” he added.

Saunders said he expected significant upward revisions to recent GDP data, which already shows an annualised growth rate of more than 3 percent.

Reporting by David Milliken; Editing by Larry King