GDP revised up, economy shrank by 0.4% in Q2

The UK economy shrank by just 0.4 per cent in the second quarter, a better figure than the contraction of 0.5 oper cent previously thought.

Industrial production in the quarter fell by 0.7 per cent, not the 0.9 per cent estimated in the first revision of the figures.

The construction sector also performed better than expected and there was a slight revision up in the manufacturing sector too.

This is the final revision of GDP figures in the UK for the second quarter.

The first estimate in July said that the UK economy shrunk by 0.7 per cent, but this was later revised to a contraction of just 0.5 per cent.

Howard Archer, Chief UK & European Economist at IHS Global Insight said: "The trimming of GDP contraction in the second quarter to 0.4% quarter-on-quarter from 0.5% is welcome news but it does not actually fundamentally change the economic story. Indeed, the year-on-year drop in GDP was unrevised at 0.5%.

"The UK still has a tough job in developing significant sustainable growth, given tighter fiscal policy, still-significant pressures on consumers and soft global growth," IHS Global Insight economist Howard Archer said.

"More stimulus from the Bank of England remains highly likely in the fourth quarter," he said.

The economy suffered in the second quarter from the extra day’s bank holiday as a result of the Queen’s Diamond Jubilee celebrations.

The very wet spring also undermined activity in the construction and retail sectors. Excluding these factors, most economists believe economic output was essentially flat in the second quarter.

The contraction in the third quarter has been lifted slightly as the Office for National Statistics (ONS) revised its data on construction output, saying that it fell by 3.0 per cent, rather than 3.9 per cent between April and June.

However, the final GDP revision for Q2 follows on from a fall of 0.4 per cent in the final quarter of 2011 and a drop of 0.3 per cent in the first quarter of 2012, pushing the UK into a double-dip recession.

The data for the second quarter shows that industrial output was less hindered than previously thought. It fell by 0.7 per cent not 0.9 per cent quarter-on-quarter.

On the expenditure side of the economy net trade fell as exports shrank by 1.7 per cent quarter-on-quarter, whilst imports rose by 1.4 per cent. Consumer spending also shrank by 0.4 per cent in the quarter.

Outlook for GDP in the third quarter

The outlook is positive, according to Mr Archer.

Mr Archer predicts a bounce in industrial output and a reduced trade deficit in July, though this was reversed in August. 

Mr Archer believes similar positive trends in unemployment figures, the services sector and retail sales will also help create growth of at least 0.5 per cent, reversing the second quarter deficit.

Mr Archer said: “We have currently pencilled in GDP growth of 0.6-0.7% quarter-on-quarter in the third quarter, but there is obviously major uncertainty over this.

“We expect the economy will continue to grow in the fourth quarter, but will likely struggle to expand by more than around 0.25% quarter-on-quarter. As a result, we see GDP contracting by 0.3% overall in 2012 as growth in the second half is insufficient to offset the contraction suffered in the first half.”

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