Economy: New GDP figures bring little relief

Gross domestic product (GDP) – a broad measure of the economy – fell 0.5 per cent between April and June in the Office for National Statistics’ second estimate, which is better than the initial 0.7 per cent drop that shocked the City last month.

But despite the upward revision, it still represents the biggest quarter-on-quarter fall for more than three years and means the economy remains mired in the longest double-dip recession since the 1950s.

Smaller than previously thought falls in the production and construction sectors drove the figure higher, while the powerhouse services sector was unrevised, with a 0.1 per cent fall.

Figures released yesterday showed the UK’s trade deficit increased to £7.3bn, up from £3.7bn in the previous quarter as the eurozone debt crisis hit exports – its biggest fall since the third quarter of 2010, which wiped one per cent off the GDP figure.

Business investment also fell for the first time for more than a year.

The improved GDP figures are unlikely to ease the pressure on Chancellor George Osborne who came under fresh fire to boost the economy last week when figures showed an increase in public sector borrowing in July.

A spokesman for the Treasury said: “Britain is dealing with some very deep-rooted problems at home and a very serious debt crisis abroad, and that is why the healing of the economy is proving to be a slow and difficult process.

“Compared to two years ago, the deficit is down, inflation is down, and there are more private sector jobs. The Government will continue to give its undivided attention to the economy – for example with recent announcements on infrastructure and lending.”

The fall in production was revised up from minus 1.3 per cent to minus 0.9 per cent, while the ONS said construction fell 3.9 per cent rather than 5.2 per cent as previously estimated.

The figures suggest the extra bank holiday for the Queen’s Diamond Jubilee and the washout start to the summer did not have as much of an effect as feared.

Economists believe the extra bank holiday may have knocked as much as 0.5 per cent off GDP, but the ONS said it was too early to measure the effect.

The services sector was not revised higher despite a better than previously thought 0.8 per cent uplift in retail sales in June.

In another grim sign for the high street, household spending decreased 0.4 per cent in the second quarter, despite falling inflation easing the pressure on consumers.

There are fears that the economy will struggle to pull out of its double-dip recession in the current quarter as the eurozone debt crisis slows global growth.

Vicky Redwood, chief UK economist at Capital Economics, said: “UK GDP was revised up in Q2 as expected, but the revision is very small in the big picture and means that output is still more than four per cent below its pre-recession peak.”

She added: “Given the drags from the fiscal squeeze, eurozone crisis and high domestic debt levels, we still doubt that a strong recovery lies ahead.”

Shadow Treasury Chief Secretary Rachel Reeves said: “Any small upward revision in growth figures is welcome, but our economy is still in the longest double-dip recession since the Second World War and that’s why borrowing so far this year has risen by a quarter compared to last year.

“David Cameron and George Osborne’s plan has badly failed. Since the spending review our economy has shrunk by 0.6 per cent. And with Britain just one of two G20 countries in a double-dip, it is clear that this is a recession made in Downing Street.”