The UK economy did not contract as much as estimated in the second quarter, according to the latest estimates from the Office for National Statistics.
Quarterly national accounts published today reveal that gross domestic product fell by 0.4% in the three months to June, compared with 0.5% estimated in August and 0.7% in July.Today’s accounts say the latest change is due to a smaller than expected contraction in construction work. Output in the sector is now thought to have fallen by 3% across the three months, compared with 3.9% estimated in August.
Overall, the economy has contracted for three consecutive quarters, falling by 0.3% in the last quarter of 2011 and 0.2% in the first quarter of this year.
An economic review accompanying the accounts warned that ‘the underlying course of the UK economy continues to be obscured by the impact of the Diamond Jubilee bank holidays and more recently, the London 2012 Olympics’.
It added that, allowing for these factors, there appeared to have been recoveries in manufacturing output and exports in July, and the ‘labour market continued to surprise on the upside’.
However, the report warned that the UK construction sector continued to act as a drag on growth, with the 3% fall in the second quarter following a decline of almost 6% in the first three months of the year. Although the sector accounts for only 6.8% of total output, it could have a significant impact on GDP due to its ‘considerable volatility’, the ONS said.
Continuing decline in output from the North Sea industries was also reducing growth, the report added. A decline in oil and gas production meant that the second quarter GDP figures would be 0.1 percentage points higher if the industry was excluded.
Falling production levels have been attributed to compulsory maintenance work on oil platforms.
Colin Edwards, an economist at the Centre for Economics and Business Research, said the release painted ‘a marginally healthier picture of the UK economy than had previously been portrayed’.
However, he added: ‘The fact remains that the UK is in recession for the second time in four years, while output remains well below pre-financial crisis levels – around 4% lower in real terms. The encouragement that can be taken from a 0.1 percentage point upward revision in growth is marginal.
‘Looking forward, we expect the UK to contract by around 0.6% for 2012 as a whole. We expect to see output remaining flat at best for the next quarter – the UK may narrowly avoid continuing recession in Quarter 3 – but a difficult global economic environment, particularly in the eurozone, will act as a constraint on UK output expansion.’
