UK GDP expected to contract by 0.3% in 2nd quarter

The first estimate of GDP for the second quarter will be issued on Wednesday and it is expected to show that the recession has deepened and the economy contracted by 0.3 per cent.

This follows falls of 0.4 per cent in the final quarter of 2011 and 0.3 per cent for the first quarter of 2012 and provides bleak news for the government and in particular the Chancellor, George Osborne as parliament heads for its summer break.

The double-dip recession is likely to be strengthened by the data and this quarter’s fall is in part down the extra Bank Holiday the country enjoyed for the Queen’s Diamond Jubilee.
Recent surveys from the manufacturing, construction and services sector have been disappointing with contraction seen in the construction sector and a downturn in manufacturing and industrial production.

Meanwhile, the dominant services sector which accounts for around two-thirds of the overall economy has only shown very moderate growth.

The first estimate of GDP is based solely on the output side of the economy. However, likely developments on the expenditure side of the economy look likely to show a decline in both retail sales and consumer spending overall.

However, Howard Archer, Chief UK & European Economist for IHS Global Insight believes the economy will grow again in the second part of the year, helped by the Olympics, to end flat for 2012.

He said: “The economy should be able to achieve GDP growth in the third quarter, as it is helped by the making up of some of the activity lost to the Queen’s Diamond Jubilee in the second quarter and also receives a limited overall boost from the staging of the Olympic Games.

“The economy should also continue to grow in the fourth quarter as inflation hopefully falls back further.

“Consequently, we expect UK GDP to be essentially flat overall in 2012, and there is a very real and increasing danger that the economy will contract marginally.”