Recovery will be choppy, say economists

REVISIONS to second quarter GDP growth this Friday are expected to leave the headline figure unchanged at a robust 1.1 per cent.

However, economists warn the breakdown of growth by expenditure could reveal some truths about the shape and duration of the recovery.

Capital Economics’ Jonathan Loynes said: “The second release relating to second quarter GDP is likely to add to doubts over whether the impressive pace of expansion seen in the second quarter will prove to be sustainable.”

The data, which is released on Friday morning, is expected to show a reliance on consumer and government spending, neither of which is forecast to be sustained during the second half of the year as austerity spending cuts kick in. Analysts expect household spending to have jumped 0.7 per cent in the three months to June.

This will leave the private sector to shoulder the burden but continued uncertainty about the economic future is predicted to limit business investment for some time to come. Economists reckon that the retrenchment in the public sector is likely to be so severe that even a 3.5 per cent rebound in private sector activity in 2011 will not be enough to push GDP growth above two per cent.

However, Investec’s Philip Shaw said: “Nonetheless recent indicators suggest that the third quarter got off to a good start, so although the pace of expansion in the quarter as a whole seems highly unlikely to match that of the second quarter, it is possible that the UK notches up a very respectable pace of output.”

Last week, official figures showed government borrowing fell sharply in July, largely due to robust corporation tax receipts. The government borrowed £3.8bn over July, down from £14.7bn in June and £18.4bn in May. It borrowed £6.1bn in July of last year.