UK recession may not be as deep as feared

The Office for National Statistics is expected to revise up its initial estimate of second quarter GDP to -0.5pc, reports The Telegraph.

July’s estimate, which was based on just 40pc of the data, showed that the UK economy contracted by 0.7pc in the three months to the end of June, as construction output sank by 5.2pc and the UK’s services sector, which accounts for 75pc of UK GDP, contracted by 0.1pc.

However, the ONS said this month that the contraction in UK construction output was not as deep as feared. It revised the figure to -3.9pc in the second quarter, suggesting a 0.1 percentage point upward revision in GDP.

It also revised up its estimate of industrial production. Economists said that the combined revisions signalled that the economy might have contracted by 0.5pc between April and June.

Although this will show the economy is still in recession, the Bank of England has previously said that the Queen’s Diamond Jubilee may have knocked around 0.5 percentage points off UK growth, meaning underlying growth – excluding the Jubilee bank holiday effect –- has been flat rather than negative.

“At this point it is not possible to assess whether potential upward revisions might have been driven by smaller-than expected Jubilee effects, or stronger-than-expected underlying growth in the economy,” analysts at Bank of America said.

Friday’s GDP figure is expected to counter some of the bad news about public finances, which revealed a shock rise in borrowing in July.

However, analysts at Capital Economics, said it would take a “massive revision” to alter the big picture of a very weak recovery:

“The upward revision to GDP to -0.4pc that we expect would go only a tiny way to reconciling the contrast between the weak economy and the strength of the labour market, underlined last week by another robust set of employment figures,” they said.
“But even if employment has been as strong as the official figures show, we still doubt that it will last.”