UK GDP down by 5.6% in the second quarter, bad but past the worst?

Gross Domestic Product fell by 5.6% in the second quarter after 4.9% in the first quarter of the year. NIESR figures had suggested a deterioration in performance into the second half but the initial estimate of 5.2% fall was a little optimistic.

On a quarter by quarter basis, the fall was 0.8% following a fall of 2.4% in the previous quarter. Compared to the prior two recessions, it is now clear the recession is far worse than the modest downturn of 1990 and is even surpassing the severe recession on the 1980’s.

By sector, construction output is down by almost 15% year on year, manufacturing is down by almost 13%, utilities are down by 10% and in the service sector, hotels, distribution, transport and storage are down by 7%. Production overall was down 12% and the service sector fell by 3.8%. Government spending was assumed to be flat in the three month period.

The figures for the second quarter are worse than expected. According to the  Times, Hetal Mehta, the senior economic advisor to the Ernst & Young ITEM Club, said: "recent hopes of recovery have run ahead of reality. With credit still severely restricted, consumers and businesses continuing to retrench and world trade yet to pick up, it is hard to see any grounds for sustained optimism."

For the year as a whole, estimates of the fall in GDP have been increased to a decline of 4.5% following revisions from the ITEM Club (4.5%) and NIESR (4.3%). Slow growth of 0.7% is estimated for 2010. This is bad, very bad but hopefully we are past the worst. Next quarter figures are critical.

ONS : Gross Domestic Product Preliminary Estimate 2nd Quarter 2009.

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Comments

[Jack Rhoades]

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Futures forecasting a 200 bp increase in 3moSterling by Dec 10
.... Gilt hedgers have sold the more distant contracts.
http://www.eurobondonline.com/ss1YR.htm

Your thoughts on the Sterling curve?

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Jack Rhoades
Eurobondonline

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