Assuming underlying growth is also held down by the fiscal squeeze, weak bank lending and falling real earnings, our forecast for a 0.5 per cent contraction in UK GDP in 2012 overall looks about right.
Not only did we slip back into recession in the first quarter of this year, but current quarter GDP is unlikely to show a strong recovery either. The Queen’s Jubilee holidays in early June are likely to curtail output.
We don’t expect a significant improvement in the second quarter, reflecting underlying weakness and also temporary distortionary factors. We could well see another quarter of negative growth.