At the beginning of 2012 the UK economy eased into its second recession. Since then, with constant uncertainty and the euro-zone debt crisis deterring investors there hasn’t been much to celebrate. Well, there was Team GB Olympic pride. Briefly. But generally speaking, good news has been sparse and rare.
Okay, it’s still not quite time to whip out the party poppers but it does appear that the UK economy may not have shrunk in the second quarter by quite as much as initially feared.
It was originally estimated on July 25th that Gross Domestic Product would experience a 0.7 per cent decline. This pessimistic figure was considered likely given the negative impact of factors like the Jubilee bank holiday and the unbelievably depressing weather. However, with construction and industrial output experiencing less of a fall than thought, the Office of National Statistics revised the figure, today stating that GDP has actually only fallen by 0.5 per cent.
No, leave the fondant fancies in the fridge. This is still only slightly good news.
The decline reported by the Office of National Statistics is still the steepest seen since the economy was severely hit by the financial crisis in the first quarter of 2009.
Vicky Redwood of Capital Economics provided her less than cheery take on the situation; ‘The headline is a bit less frightening but the bottom line is pretty much the same: the UK economy has shrunk for three consecutive quarters […]The revision is very small in the big picture. Underlying output is just stagnating. Given the drags from the fiscal squeeze, euro-zone crisis and high domestic debt levels, we still doubt that a strong recovery lies ahead.’
After the data was realised a finance ministry spokesman asserted: ‘Britain is dealing with some very deep-rooted problems at home and a very serious debt crisis abroad, and that is why the healing of the economy is proving to be a slow and difficult process’.
The report released by the Office of National Statistics also showed that net trade has been cut 1 percentage point from GDP, the most for nearly 15 years and a demonstration of the effect cooling demand for exports has had on the economy. Meanwhile, imports grew by 1.4 per cent, exports dropped 1.7 per cent and there was a 0.4 on the quarter fall for consumer spending.
Earlier this month Bank of England policy makers downgraded their predictions for growth and cleared the path for more stimulus. Some economists are forecasting a slight rebound from July, but investors and business leaders are continuing to pile the pressure on Chancellor of the Exchequer George Osborne. Many are demanding that his strategy be significantly revised. Recent business surveys have called for increased stimulus to be aided by the Bank of England lowering interest rates and purchasing bonds.
The broad picture painted by today’s data is one of almost unaltered economic weakness. As a combined result of this, and the fact that some investors had predicted an upward revision greater than 0.2, sterling dropped to a two-week low against the euro immediately following the announcement. British debt prices also rose.
Scrutiny of the government’s austerity measures will no doubt intensify as expectations regarding house-building support and further quantitative easing asset purchases mount.
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