Three quarters in a row?

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The first estimate of UK GDP growth in the second quarter is released tomorrow. The consensus view is that we will see a third consecutive quarter of falling output; a fall of 0.2% following a 0.3% contraction in the first three months of the year.

Activity indicators across manufacturing, construction and services in the UK all saw a marked weakening in May and June, with the manufacturing and construction PMI both dipping below the 50 no-change mark. Offical index of production data have been extremely volatile in the past few months, with a 0.8% month-on-month fall in manufacturing output in April, followed by a strong rebound in May. Plus the Jubliee holidays didn't bring the bounce in retail sales that might have been hoped for. And then there's the sharp drop in gloabl activity indicators, confirming that the health of under major markets is deteriortating under the pressure of the ongoing eurozone crisis.

On the face of it, this doesn't bode well for Q2 growth. However, a few things to bear in mind.

- the additional bank holidays in June will push growth down, particulary if companies had extended shutdowns over the period. This will have increased the number of working days lost.

- as ever, this is a first estimate and is a partical representation of activity

- given the one off events in the second quarter and the fact that next quarter is likely to see a bounce, not least because of the olympics, these statistics will not give a clear picture of the underlying health of the economy.

Indeed, more important is where we go from here. Our recent forecast update suggests that while the Q2 GDP is unlikely to flatter the UK's economic performance, conditions could start to improve in the latter part of the year. Although much of this depends on how events in the rest of the world evolve. A bit more certainty and visibility about the state of the world economy could kick start stronger export performance and provide a much needed boost to companies planning investments. All important cogs in the process of economic rebalancing.

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Chief Economist

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