Dire GDP data threatens UK growth hopes
DESPITE a worse-than-expected contraction in second quarter GDP, the government is still claiming that the economy is still likely to return to growth later this year.
But some analysts questioned whether we would indeed see positive GDP growth in the second half of 2009, given the shocking data released on Friday by the Office for National Statistics (ONS).
The ONS figures showed that GDP provisionally shrank by 0.8 per cent in the second quarter of 2009 on the previous quarter, dragging the year-on-year rate of growth to -5.6 per cent. Analysts had expected a more moderate quarterly contraction of 0.3 per cent, given the recent upbeat purchasing managers’ indices.
BNP Paribas’ Alan Clarke said: “One interpretation is that the green shoots indicated by survey releases were a flash in the pan and are not feeding into the hard economic data, though it is still early days. Worryingly, the upward thrust in the leading indicators that sparked green shoots fever is losing momentum.”
While the final GDP numbers may be revised upwards, there is no doubt that the data has been a nasty shock to growth prospects and the UK’s fragile recovery and some economists have downgraded their 2009 forecasts 2009 in light of the GDP figures.
IHS Global Insight’s Howard Archer said: “It now looks likely that GDP contraction this year will now be around 4.7 per cent rather than the 4.3 per cent decline that we had previously expected. The sharp second quarter drop in GDP suggests that hopes of recovery over the coming months are based on even rockier ground.”
The disappointing data is also expected to weigh heavily on the Bank of England’s quantitative easing decision, due next Thursday.