INSTANT VIEW-Q2 GDP revised down to weakest since 1992

LONDON (Reuters) - Britain’s economy unexpectedly ground to a halt in the second quarter, its weakest performance since the recession of the early 1990s, revised official data showed on Friday.

The downward revisions to the preliminary estimate of GDP were across the board and are likely to boost expectations of interest rate cuts.

However, policymakers are already factoring in the economy standing still over the next year or so and have said growth needs to slow to tame inflationary pressures.


“A downward revision to GDP was on the cards but not to zero. Weakness all round with the service sector contracting 0.5 percent in June alone. Domestic demand has fallen for two successive quarters -- (a) recession at home offset by small positive contribution from net exports.

“Output has a mountain to climb to get into positive territory in Q3. But as we said yesterday 5 percent CPI equals 0 percent GDP -- it just came sooner than expected.”


“The second estimate of Q2 UK GDP clearly increases the already strong chances that the economy will fall into recession over the coming quarters.”

“The breakdown of growth makes for pretty gloomy reading. Household spending actually fell by 0.1 percent quarter-on-quarter, despite a solid rise in retail sales, while investment collapsed by 5.3 percent.”

“The latter must reflect a sharp contraction in residential investment i.e. house-building. Both of these components are likely to weaken much further in response to the continued downturn in the housing market.”

“Meanwhile, net trade made a positive contribution only because imports fell. Exports also fell and are likely to do so further in response to the downturn in activity overseas, particularly Europe.”

“Note too that growth would have been even weaker were it not for a big jump in stockbuilding.”

“In summary, the economy now looks set to grow by just 1.2 percent or so this year, with a very strong chance of a technical recession in the second half. And things will be considerably worse in 2009.”


“The breakdown shows that consumption contracted along with investment while the offset came largely from a surge in inventories and a 1.4% quarter on quarter decline in imports. We are a little concerned by the inventory surge as it is likely to have been involuntary on the basis that output levels have not yet corrected for the weakness in demand. With weak consumer fundamentals (rising unemployment, negative real wage growth and falling asset values) being intensified by the latest hike in utility bills, our technical recession view is looking more plausible.”


“The figures are very weak and suggest the UK economy is already in recession. The downward revisions were across the board on the expenditure side and even the positive contribution from trade was not encouraging given that both imports and exports fell.”


“The Bank of England minutes suggested they were expecting a downward revision but the extent of the revision is surprising.”

“This really does put a rate cut firmly on the agenda although it is unlikely to come until we have seen the peak in inflation.”