Hopes remain for bounce-back despite GDP fall


When Bank of England governor Sir Mervyn King gazed into his crystal ball earlier this year he predicted that the economy would “zig-zag” in and out of growth throughout 2012 - but so far the recovery has headed in one direction.

The UK is now in the grip of the longest double-dip recession since the 1950s as the age of austerity, tight lending conditions and record rainfall formed a toxic cocktail for growth.

But Sir Mervyn may still be right to a certain extent.

The decline in GDP between April and June was at least in part down to one-off factors, or as the ONS dubs them "special events".

Statisticians have not been able to put a number on the impact of the additional bank holiday granted for the Queen's Diamond Jubilee - but have admitted it will be a "significant" hit.

And then there was the Great British summer. Torrential downpours throughout April and June dampened demand for clothing, food and leisure activities, while the nation's builders struggled to get out to work.

This was underlined in the construction sector figures, which showed a mammoth 5.2% decline as the dismal weather stifled projects.

Chris Williamson, economist at financial information services firm Markit, said: "Some of the overall decline - perhaps as much as 0.5% - can be attributed to the additional public holiday for the Queen's Jubilee, while wet and cold weather also hit high street sales and other outdoor-related services activity, which suggest the weakness may only be temporary."

But regardless of the "special events" - analysts, and even the Chancellor, have warned that the underlying picture is difficult.

In reaction to the most recent growth figures, George Osborne said the "country has deep-rooted economic problems" and did not offer the weather or Jubilee as an excuse.

Many have rounded on the Chancellor, blaming his deficit-busting plans for choking off the recovery.

TUC general secretary Brendan Barber said: "The Government's austerity strategy is failing so spectacularly that it has wiped out the recovery completely."

The impact of the fiscal squeeze can be seen clearly in the construction sector figures for May - in which public housing work plunged 23% and new infrastructure projects slumped 21%.

Howard Archer, chief UK and European economist at IHS Global Insight, said the economy's weakness clearly "runs far deeper" than the one-off factors flagged by the ONS.

Sir Mervyn's "zag" should eventually come in the third quarter of the year as the economy plays catch-up following the loss of activity around the Jubilee at the start of June. Economists have forecast growth of up to 0.6% for the July to September period.

A bounceback will also be aided in part by the Olympics as legions of tourists splash out on souvenirs, hotels and restaurants, while shop footfall surges.

But what about beyond the third quarter?

Well, the Chancellor and Bank governor have put in place some emergency support measures to get the economy moving again, while the Government has also announced new infrastructure investment, such as £9 billion in rail, which may boost growth.

The £80 billion Funding for Lending Scheme, a joint move by the Treasury and Bank to unclog credit flow, should feed through businesses and households.

Meanwhile, the Bank continues to fire up the printing presses - injecting a further £50 billion into its quantitative easing programme earlier this month.

But even with the extra measures, the Chancellor's tough spending cuts and tax reforms will continue to hit households and place strain on the economy, and with the crisis deepening in the eurozone, the recovery may continue to zig-zag for some time to come.


Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living