UK economy shrinks by 0.70% in Q2

Wednesday, 25th July, 2012

The UK economy was unable to pull itself from recession during the second quarter of the year with the economy shrinking greater than consensus at 0.70%, the latest official estimates suggest.

According to the Office for National Statistics’ preliminary estimate, UK GDP contracted by 0.70% over the April to June 2012 period. This follows the 0.30% contraction seen in the first quarter of 2012 and the 0.40% fall in the final three months of 2011.

The three month period was marked by a series of weak economic data. Output data for April and May and business surveys conducted in June made it likely that construction and manufacturing would act as drag on growth, while expansion in the dominant service sector was close to flat.

IHS Global Insight chief UK and European economist Howard Archer notes the preliminary estimate is only based on the output side of the economy. However, data from the expenditure side – which will be included in forthcoming revisions – suggests that areas such as retail sales and net trade are acting as a drag on growth.

Archer adds: “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.”