Economy shrank less than expected in Q2, ONS says
But the outlook remains grim for the coming months
By CFOWorld staff | CFO UK | Published 12:23, 24 August 12
Economic output in the second quarter fell less than expected, according to official data on Friday but the overall outlook for the coming months remains weak.
Second quarter output fell 0.5 percent, compared to an initial estimate of 0.7 percent, data from the Office of National Statistics revealed on Friday. It was depressed by one-off factors including unusually wet weather and an extra public holiday to mark the Queen’s Diamond Jubliee.
Economists expect a modest rebound from July but business surveys continue to paint a grim picture, keeping pressure on chancellor George Osborne to kick start growth and the Bank of England to provide more stimulus through lower interest rates or bond-buying.
The fall was still the biggest drop since the first quarter of 2009 - when the economy was hit by the immediate aftermath of the financial crisis.
Sterling fell to a two-week low against the euro and debt prices rose, as some investors had bet on a bigger upward revision.
Smaller falls in construction and industrial output were behind the upward revision.
Consumer spending fell 0.4 on the quarter, while exports dropped 1.7 and imports rose 1.4 percent. Net trade shaved 1 percent off gross domestic product, the biggest drag on growth from trade since the second quarter of 1998. A build-up in companies’ inventories added 0.5 percent to GDP.
The economy slipped into its second recession in four years around the turn of the year as the ongoing euro zone debt crisis hurt exports and the uncertainty made businesses reluctant to invest.
There is also pressure from the government's austerity drive, and Friday's data showed that the second quarter was the first time since the third quarter of 2011 when government consumption did not rise.
Earlier this month the finance ministry and Bank of England launched a new scheme to offer banks cheap funding if they lend on to businesses and home-buyers at reduced rates, and further measures to support house-building are expected soon.
The Bank launched another round of quantitative easing asset purchases in July, buying £50 billion of gilts to boost the economy, and most economists expect a further increase to the £375 billion total in November.
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