British recession not as bad as previously thought
Britain’s recession is not as deep as previously thought, according to revised second-quarter data published Friday, but questions remain over the outlook for the rest of the year, analysts said.
British gross domestic product (GDP) shrank 0.5 percent between April and June compared with the first quarter, the Office for National Statistics (ONS) said in a statement.
Investors shrugged off the news, which tallied with market expectations and marked a modest upgrade from the prior estimate of a 0.7-percent contraction.
Smaller-than-expected falls in the manufacturing and construction sectors were behind the revision, while an extra public holiday in June to celebrate Queen Elizabeth II’s diamond jubilee weighed on output.
Some economists said third-quarter GDP would win a modest boost from the London 2012 Olympic Games, which ran from July 27 to August 12.
“These revisions were bang in line with what we had expected,” said Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club.
“We still expect a substantial rebound in Q3 as the impact of the extra bank holiday in Q2 unwinds and, with a minor boost likely to come from hosting the Olympics as well, we should see growth more than offset any losses in Q2.”
However, other pundits argued that the Olympics would provide only a temporary boost.
Britain remains mired in recession amid painful state austerity cuts and ongoing fallout from the debt crisis in key trading partner the eurozone.
“UK GDP was revised up in the second quarter as expected, but the revision was pretty small in the big picture. The UK’s economic performance still looks dismal,” noted Capital Economics analyst Vicky Redwood.
She added: “GDP should rebound in the third quarter as the bank holiday effect unwinds and any boost to the Olympics comes through.
“However, this will obviously just be a temporary pick-up… Given the drags from the fiscal squeeze, eurozone crisis and high domestic debt levels, we still doubt that a strong recovery lies ahead,” she added.
The improved GDP numbers were meanwhile unlikely to ease the pressure on Chancellor of the Exchequer George Osborne, after separate data earlier this week revealed a shock increase in last month’s public sector borrowing.
The coalition government unexpectedly added to its public sector debt pile in July, dealing a blow to its hopes of reducing the country’s large deficit.
Public sector net borrowing stood at £600 million ($946 million, 763 million euros) in July compared with a net repayment of £2.8 billion in the same month one year earlier, official data showed last week.
A Treasury spokesman insisted Friday that the government was tackling debt but added that it would not be easy.
“Britain is dealing with some very deep-rooted problems at home and a very serious debt crisis abroad, and that is why the healing of the economy is proving to be a slow and difficult process,” the spokesman said.
Britain was already in recession prior to the second quarter after posting two successive negative quarters since late 2011.
The economy shrank 0.4 percent in the fourth quarter of last year and by 0.3 percent in the first quarter of 2012.
The ONS on Friday said economic output dropped 0.5 percent in the second quarter compared with the same period one year earlier. That also marked an improvement from the prior estimate for a contraction of 0.8 percent.