Azad Zangana, European Economist
Sign up for our weekly Newsletter and receive the latest ETF and ETC news.
Click here to register for your free copy
For professional investors and advisers only. This document is not suitable for retail clients.
The estimate confirms that the UK is now in its third quarter of its double-dip recession, making it the longest double-dip recession since records began. Compared to a year earlier, the national income is down 0.8%, but the cumulative decline in real GDP during this recession is just shy of 1.4%.
The results for Q2 GDP are poor to say the least. While the vast majority of economists had forecast another negative quarter, the final print was worse than even the most pessimistic forecast surveyed by Bloomberg. The ONS has explained that special factors have had a negative impact on the data. The extra bank holiday to celebrate the Queen’s Diamond Jubilee meant that the economy lost a day of production/activity. In addition, the ONS points to the wet weather during the quarter, which appears to have impacted construction activity and retail sales. It is worth bearing in mind that these are still preliminary numbers that are subject to revisions. The ONS has little hard data on activity in June, when most of these special factors would have hit.
Looking ahead, we expect the UK economy to return to growth in the third quarter as most of the special factors that dampened activity in Q2 reverse, but also thanks to an additional boost from London hosting the Olympic Games. The Olympics have helped lift employment through temporary jobs created for the games, but also additional working hours being made available in the retail sector thanks to the relaxation of Sunday trading laws. The extra demand from tourists visiting the games should slightly offset the cost of the disruption to the local economy, but one of the big factors boosting GDP in Q3 will be the inclusion of money spent on tickets for the first time.
Nevertheless, the data is clearly showing more underlying weakness than we expected, especially in the service sector of the economy. We continue to forecast the economy to return to positive growth in the second half of the year, though we also forecast a return to recession in 2013, partly caused by the eurozone debt crisis, and partly caused by a lack of effective policy left available to the Bank of England (BoE). We expect the BoE to continue its quantitative easing programme beyond November, but we do not expect the programme to have a meaningful impact. As a result of the latest GDP figures, we have cut our annual 2012 GDP forecast from -0.1%, to a very weak -0.5%. We have also cut our 2013 forecast from 0.7% to 0.5% growth, which is significantly lower than the latest consensus of 1.6%.
Important Information:
For professional investors and advisers only. This document is not suitable for retail clients.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Schroders has expressed its own views and opinions in this document and these may change. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.
Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Services Authority.
Source: ETFWorld – Schroders Quickview
Subscribe to Our Newsletter
