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Friday, 24 July 2009

UK Q2 GDP results fall short of expectations

Preliminary GDP data for the UK came in well below analyst expectations today, falling by 0.8% in the second quarter of 2009. Analysts had expected a fall smaller decline of just 0.3%.

It should be remembered that these preliminary estimates do have a habit of being substantially revised before they are finalised, however the magnitude of this fall should be enough to temper some of the more extreme claims that the recession ended some time back in May.

Don't get me wrong, there are signs that the recession is starting to moderate. The 0.8% GDP decline is nothing compared to the 2.4% seen in the first quarter of the year and recent indicators have pointed to continued improvement. However, pulling out of this recession is going to be a long process, and unfortunately a rather painful one. For one unemployment is up by more than 700,000 since the start of 2008 and will continue to rise, even when the economy starts to grow again.

These GDP figures are also lower than the last budget predicted and will mean that the government is highly unlikely to meet its fiscal forecasts. As a result taxes are highly likely to rise and the public sector is likely to experience cuts in funding. This will inevitably mean that jobs will be lost in the public sector, further forcing up employment and destroying one of the last bastions of secure employment.

A probable turn in the inventory cycle as manufacturing businesses, having run down their stocks, restart production and recent economic indicators suggest that the UK economy may return to positive economic growth as early as the third or fourth quarter of 2009. This is indeed possible. However, the road to recovery will not be smooth. The unwinding of fiscal imbalances, a return to a normal interest rate environment and the withdrawal of quantitative easing will be difficult, threatening recovery.

Whatever shape you think the recovery will take one thing is for sure, it will not be easy!

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posted by Carl Malways at | 0 Comments Links to this post