UK: Economy set for a third consecutive quarter of negative growth

FEARS that the double-dip recession persisted between April and June are set to be confirmed next week with figures expected to show that the Diamond Jubilee holiday and record rainfall kept the economy in the doldrums.

Gross domestic product (GDP), a broad measure for the total economy, is forecast to have fallen for the third quarter in a row by around 0.4% between April and June.

The extra bank holiday granted on June 4 for the royal celebration and the wettest April-to-June period since records began in 1910 have both hit output, analysts said.

Philip Shaw, economist at brokers Investec, who has forecast a 0.4% decline in the second quarter, said: “Data over the past month or two have done little to suggest any meaningful recovery.”

He added: “Indeed it seems highly likely that the second quarter data will show the economy suffering its third consecutive quarter of contraction.”

The preliminary estimates, which are subject to revision, will be released by the Office for National Statistics (ONS) on Wednesday.

The economy entered a technical recession in the first quarter of the year, with GDP declining 0.3%, following a 0.4% drop in the final quarter of 2011.

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A dismal performance from the nation’s builders has weighed considerably on overall growth with Mr Shaw predicting a “disaster” for the industry in the second quarter.

The economist said output in the construction sector could have fallen by as much as 6% between April and June, following a 4.9% drop in the first three months of 2012.

The powerhouse services sector, which makes up some three-quarters of the total economy, is also on course to deliver a disappointing result following a series of weak surveys from purchasing managers.

Furthermore, retailers, one of the few types of business that was expected to receive a boost from the Jubilee, saw sales grow by a mediocre 0.1% in June after the ONS said the royal event had “no significant impact”.

There is some light at the end of the tunnel with most economists predicting a return to growth in the third quarter, partly driven by the London Olympics.

Howard Archer, chief UK and European economist at IHS Global Insight, who has forecast a 0.3% decline in GDP in the second quarter, said the economy should bounce back with 0.6% growth between July and September.

The international sporting event, which kicks off with the opening ceremony on July 27, should benefit the economy through ticket sales, retail trade, temporary employment, tourism and lifting consumer confidence.

Mr Archer said: “The economy should be able to achieve GDP growth in the third quarter, as it is helped by the making up of some of the activity lost to the Queen’s Diamond Jubilee in the second quarter and also receives a limited overall boost from the staging of the Olympic Games.”