2nd QTR UK GDP Preview: Will the UK economy shrink?
Vital second quarter GDP figures are released tomorrow by the Office for National Statistics (ONS) and they are expected to reveal low levels of growth at best.
The timing of the first estimate of second quarter GDP growth comes just as parliament breaks for the summer recess and is likely to be seen by many commentators as an end of school report on Chancellor George Osborne and the coalition government’s policy for economic recovery.
The new GDP figures come against a background of no growth over the last six months. The final quarter of 2010 showed a fall of 0.5 per cent in GDP, this was reversed with GDP growth of 0.5 per cent in the first quarter of 2011, meaning that the economy was flat for the last six months of reported GDP figures.
The Office of Budget Responsibility (OBR) has already revised overall economic growth estimates for 2011 down to 1.7 per cent and the Organisation for Economic Cooperation and Development (OECD) has recently lowered its own estimate of UK growth to 1.4 per cent.
Last week the Treasury released figures showing that the overall average of all forecasts for UK GDP growth in 2011 was now down at 1.3 per cent, half of the level predicted when the OBR made its first prediction last June.
Howard Archer, Chief UK & European Economist for IHS Global said: “The economy is likely to have eked out marginal growth at best in the second quarter, and there is a very real danger that it could have contracted modestly.
“We suspect that the economy only eked out growth of 0.1% quarter-on-quarter in the second quarter after activity was flat overall through the first quarter of 2011 and the fourth quarter of 2010.”
Some economists are even predicting that the economy may have contracted in the second quarter pointing to the disappointing manufacturing data, contraction in the service sector, a fall in consumer confidence and struggling retail sales data for June.
Although this first estimate of economic activity by the ONS will only take into account the output side of the economy, it is expected that low wage growth, higher utility and food b ills and cuts to benefits will confirm that the expenditure side of the economy will show low levels of consumer spending for the quarter as well.
If the economy does show just growth of 0.1 to 0.5 per cent then it will be very difficult for the Chancellor to reach his target of reducing the Public Sector Net Borrowing Requirement to £122 billion in the 2011-12 tax year.
If this were to happen Mr Archer said: “We suspect that the Chancellor will accept some slippage in his fiscal targets rather than tighten policy further due to concern that more spending cuts and/or tax hikes will weigh down additionally on growth prospects.”
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