Good news and bad news today, as the Office for National Statistics revealed that UK output fell by another 0.8% in the second quarter of this year. The good news is that GDP is now falling at a much slower rate than it was in the first quarter, when output plunged 2.4% (the worst since the 1926 General Strike, according to one commentator). The bad news is that it’s still falling – and given that the consensus City forecast was for a 0.3% drop, it’s still falling at a much faster rate than everyone expected. So cancel that green shoots party you were going to have tonight.
It’s fair to say the City has taken a rather ‘glass half-empty’ view on today’s figures. Analysts (who are probably miffed about their estimates being so far out) have been united in the view that this a truly rotten showing by the UK economy, particularly when you drill a bit deeper into that headline figure. Despite recent surveys suggesting that the manufacturing sector was starting to climb out of its very big hole, production industry output dropped 0.7% on last quarter (or 5.1% year-on-year). And even more surprisingly, output in the service industries fell another 0.6%, with business services and finance suffering the most. Not the kind of numbers that point to an imminent economic recovery.
Today’s news won’t have made happy reading for the Government either. In order to hit the Treasury’s estimate of a decline of up to 3.75% in GDP this year, there’d have to be a fairly major turn-around in the second half of the year – and although a return to growth is expected, it’s unlikely to be enough. And if it isn’t, this means the Government will have to borrow even more money to add to its current £800bn tab. So it’s no wonder the pound has dived even further against the dollar this morning.
We should point out that this is only the ONS’s initial (or ‘flash’) estimate of the final GDP figure – it may be adjusted slightly as more data comes in from various different industries. But it does look very much like reports of the recession’s demise have been greatly exaggerated...
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