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Home > Investments > Economic Indicators

By Rebecca Clancy | Published Jul 23, 2012

Economists predict Q2 GDP contraction

The UK will this week report a third consecutive quarter of economic contraction, economists have warned.

This Wednesday (July 25) the Office for National Statistics is set to release its preliminary estimates for UK gross domestic product (GDP) growth in the second quarter of 2012.

Economists are forecasting that the body will estimate that the economy shrank further, mainly due to the extra bank holiday for the Diamond Jubilee, with the consensus seen as a contraction of 0.2 per cent.

The final estimate for the first quarter in 2012 showed the UK’s economy contracted by 0.3 per cent, which placed the UK in a technical recession – defined as two consecutive quarters of shrinkage – for the second time in four years.

Earlier this month the National Institute of Economic and Social Research predicted a decline of 0.2 per cent in its forecast for second quarter GDP.

Peter Dixon, economist at Commerzbank, said his forecast for GDP growth in the second quarter was also a contraction of 0.2 per cent.

“The underlying data is not particularly supportive and the impact of the Jubilee weekend is anticipated to knock output off,” he said.

However, Simon Ward, chief economist at Henderson Global Investors, said he expected the economy to contract by as much as 0.3-0.4 per cent.

The economist said that looking at industrial service and construction figures for the second quarter, which are already available, it suggested that GDP growth in April and May was slightly below the first quarter, while the extra bank holiday in June “will have a negative impact”.

“The bank holiday effect will be significant and the ONS cannot ignore that,” he said.

“However, I think the impact of the number will be less significant than normal as the bank holiday effect is expected.”

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