UK GDP sees 0.7% contraction in Preliminary Q2 UK GDP Estimate
26 July 2012
The initial estimate of Q2 UK GDP has was released yesterday. Though not something we make a habit of commenting upon, the reading of -0.7% against expectations of -0.2%, will no doubt create headlines.
Coming in the midst of a worsening Euro debt crisis, slowdown in China, worries about the US “fiscal cliff” (US Government tax issues) and earnings miss from Apple, it’s fair to say that the timing of the release is unwelcome.
Regardless of the possibility for subsequent revisions to the data, at best we would expect to see this revised upwards to a -0.5% figure, which remains disappointing.
Looking into the figures, we see sizeable declines in the extraction industries (-0.1% contribution), manufacturing (-0.2%) and construction (-0.4%). With Euro-area demand coming under pressure (accounts for near 50% of UK exports) and the weather being so dismal, it ought not come as too much of a surprise to see weaknesses in these areas, but the extent of decline in construction is a touch puzzling given a similar sized decline in Q1.
Markets seem to have taken a pretty sanguine view of the data with few moves in either bond or equity markets so far. Our view would be that the data probably heightens the prospect of additional Quantative Easing measures from the Monetary Policy Committee.
Sources: All data figures quoted are from The Office for National Statistics (ONS)