British Double Dip Accelerates Following "Terrible" GDP Data
If the UK was desperately hoping for a "terrible" economic print, it got it this morning after preliminary Q2 GDP printed 0.7% on expectations of a -0.2% decline, following a -0.3% drop in Q1, cementing the country's double dip collapse. Reuters explains: "The Office for National Statistics said Britain's gross domestic product fell 0.7 percent in the second quarter, the sharpest fall since early 2009 and a bigger drop than any of the economists surveyed in a Reuters poll last week had expected. The figures confirmed that Britain is mired in its second recession since the financial crisis, with the economy shrinking for a third consecutive quarter. It will add pressure on Osborne to get the economy growing again after a crisis that has left many Britons poorer as rising prices and higher taxes ate up meager wage increases. Sterling hit its lowest in nearly two weeks against the dollar after the data, and government bond prices rallied on speculation that the Bank of England may have to provide more economic stimulus than expected. Earlier this month the BoE has announced another 50 billion pound program of gilt purchases with newly created money to soften a grim economic outlook, but Wednesday's data is likely to add to market speculation that it may cut interest rates later this year. "This is terrible data. Frankly there's nothing good that comes out of these numbers at all," said Peter Dixon, an economist at Commerzbank. "The economy looks to be badly holed below the water line at this stage. It's a far worse period of activity than we'd expected."" Amusingly, according to Goldman "It is difficult to reconcile the weakness of today’s official
GDP data with any other indicator of economic or labour market activity." We knew the peripherals were doing all they can to sabotage their economies and be eligible for more aid and bailouts. But the UK?
Surely this, together with the big German IFO miss, which came at 103.3 on expectations of a 104.5 print, and down from 105.2, which also proves that the European recession is engulfing Germany, is why futures have lifted 11 handles overnight and are now solidly in the green despite Apple and everything else.
Some more on UK GDP from a shocked Goldman:
BOTTOM LINE: According to the ONS’s Preliminary Estimate, UK GDP fell 0.7%qoq (-2.8%qoq annualised) in Q2 (Consensus -0.2%qoq; GS -0.1%qoq). The data is difficult to reconcile with any other indicator of economic or labour market activity and is likely to be revised higher over time.
1. The additional Jubilee holiday in June reduced Q2 GDP by 0.3%-0.4%qoq, on our estimates. But this distortion was factored into forecasts and, relative to expectations prior to the release, the surprise was substantial (Chart 1). The biggest misses in the sectoral data – relative to our expectations – were in Construction (which fell 5.2%qoq (not annualised) in Q2) and Transport and Communication (which fell 1.4%qoq; Table 1).
2. The ONS suggests that today’s Preliminary Estimate is subject to “greater uncertainty than usual” because of the additional Jubilee holiday and the effect of unusually bad weather in the quarter (it was the wettest second quarter in the UK since records began in 1910). The 'usual' uncertainty surrounding the ONS’s early GDP estimates is already pretty substantial: in the 10 years to 2010—the latest year for which fully-reconciled data are available—the average revision to the first release has been +0.1%qoq (+0.4%qoq annl.) and the average absolute revision has been +/-0.43%qoq (+/-1.8%qoq annl.). There have been seven quarters in the past 10 years (i.e., 18% of the time) when the revision to the original Preliminary GDP estimate has been 0.7ppt or larger. The largest revisions to GDP data typically occur 2/3 years after the initial release.
3. It is difficult to reconcile the weakness of today’s official GDP data with any other indicator of economic or labour market activity. Employment rose by 182k (or +0.6%) in the three months to May, unemployment fell from 8.3% to 8.1%, and private sector surveys – such as the PMIs – were consistent with GDP growth of around 1.0%-1.5%qoq annualised. Our UK Current Activity Indicator (CAI) – which is designed to distil information from a wide range of activity indicators and is distorted to a lesser extent by the additional holiday than the official data – has been consistent with GDP growth of around 1.0%-1.5%qoq annualised (Chart 2). In our view, the UK economy is sluggish, but it is not in recession.
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