UK GDP contracted by 0.4% in the second quarter of 2012
ONS figures released yesterday show that the UK GDP has shrunk less than previously estimated.
The Office of National Statistics (ONS) had originally reported that the British GDP contracted by 0.7% in the three months ending in June 2012 compared to the first quarter.
Last month, ONS revised the estimate and said that the contraction was actually 0.5%. Most analysts and market observers did not expect this second estimate to be revised.
Despite the downward revision the figures are still “gloomy” the British Chamber of Commerce has said. According to the figures released yesterday, fall in construction output was the main reason for the contraction but it was better than previously expected. In the flash estimate, the ONS had reported that construction had fallen by 5.2% but yesterday’s figures reveal it was only 3.2%.
Production output, that includes manufacturing, fall was also revised downwards from 0.9% to 0.8%. The EEF, the manufacturers association, are actually quite confident about their sector in the economy and pointed out that the sector received almost 6% of investment in the second quarter.
The latest set of figures also address one of the key conundrums economists were faced with. How can a economy create 200,000 jobs in the same quarter when it shrinks by 0.7%?
Paul Fisher, a Bank of England Monetary Policy Committee member, in an interview said that the UK economy will bounce back in the current quarter with strong GDP numbers. Yet, there are concerns that the economy is not growing faster despite moves by the government to increase lending to British businesses and households.
While the economy shrinking less than previously expected will be welcome in Downing street, the news that Britain’s current account deficit jumping to a record high of £20.8 billion or 5.4% of GDP will be a major concern.
However, analysts say this is due to the investments by UK businesses and households in the troubled Eurozone. “The poor relative return on the holdings of UK residents in the euro area has been a growing weight on the UK's net external position," Nomura economist Philip Rush told Reuters.