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City economists were today scrambling to rewrite forecasts for the year after a shocking decline in second-quarter output that none of them managed to predict.
Official figures showed the economy shrank by 0.8% between April and June — far worse than the average 0.3% slump expected by the so-called experts. The fifth quarter of decline in a row followed a dismal 2.4% drop in the first three months of the year.
All parts of the economy — apart from the public sector — were in retreat, from construction and manufacturing to finance. Philip Shaw of Investec, who predicted a 0.3% decline, branded the gross domestic product figures “an absolute curveball”.
He said he now expects output to fall by “a scary 4.5%” this year, rather than his earlier forecast of 4%. Vicky Redwood of Capital Economcs, who also predicted a 0.3% drop, said: “The figures were shockingly bad and firmly dashed any lingering hopes that the UK had already pulled out of recession.”
Not one economist in London predicted a fall as bad as 0.8% for the second quarter, according to a survey by Bloomberg.
Michael Saunders of Citigroup came closest, having pencilled in a fall of 0.6%. Alan Clarke of BNP Paribas predicted growth of 0.2%.
City commentator David Buik of BGC Partners wondered if the numbers had been picked from a tombola, adding: “There have been no signs that the economy has improved that dramatically.”
Some say the City is to blame for causing false optimism about the economy. The consensus forecast for the second quarter was even further off the mark than those in the previous two quarters, when the City predicted contractions of 1.5% and 2% but official figures reported falls of 1.8% and 2.4%.
George Buckley of Deutsche Bank, who forecast a fall of 0.5% for the second quarter, said: “The forecasts are getting more and more inaccurate. We are now getting some big changes in the GDP numbers, and as a result some big surprises.”
Ross Walker of Royal Bank of Scotland said today's numbers were “dire” and downgraded his forecast for the year from a decline of 4.1% to one “in excess of 4.5%”.
The pound gave up early gains against the dollar, falling 0.36 cents to $1.6442.
“These figures kill any hopes for recovery in the second half of the year and we are going to have to wait until 2010 before we see the numbers turn positive,” said Alex Dunn, senior trader at Caxton FX.
“Investors are consequently taking a more cautious view on the pound and we expect that the rate will tread water for a time. Nonetheless, the worst of the recession has probably passed and investors are prepared to take on more risk, and consequently we believe we will see more dollar weakness against the pound in the second half.”
The scale of the slump led to fresh calls for the Bank of England to print more money through quantitative easing. David Kern, chief economist at the British Chambers of Commerce, said: “There is no room for complacency and suggestions of suspending quantitative easing are misguided.”
Reader views (10)
These 'experts' are qualified in commercial companies.
How much worse are Brown, Darling and Balls. These hopeless incompetents have never had any real large commercial job. Brown's degree was 'The Scottish Labour Party'. No surprise he has no idea about directing the business of UK plc. Stepping back to review the actions of Brown it is clear he has taken situations that worked well enough in 1997, such as Bank of England supervising banks, or the Army, or welfare, housing, employment, schools, immigration, pensions, gold reserves, MP's expenses, even Law Courts. He alters policies to only benefit the Labour Party, and promote himself. So in law he encourages sharia courts to get muslim votes, even though they directly oppose UK and EU law discriminating against non muslims and women. His claim that 'I ended the economic cycle' shows his misunderstanding of economics, where cycles have run for 3,000 years. His boast was made as house prices boomed unsustainably at 20% pa. His claims show deep stupididty about the wider economic world, and are near delusion. With that record, now Brown, Darling, Balls and cronies like McBride tells us 'all is well'. Only no-one has said how £900BN of debt they incurred is to be paid back. Brown has a nerve to even come into public. He should go and hide with his 'best and true friend' Fred the Shred. It seems Labour are unaware of how much they are hated.
- Allan, bethnal green uk, 01/09/2009 13:34
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None of these city "experts", financial analysts or journalists put money on their recommendations. they are paid a salary.
Have a think about that one.
- Simon, London, 07/08/2009 18:11
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And to think that these so-called experts get paid for their `advice' and `opinion'.
Can I have some, please?
- Ted, London, 26/07/2009 10:42
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There are now so many statistics coming from one of hundreds of different sources. We are awash with data and communication resources, yet even with all this data and analysis we still dont seem able to predict a thing... if i was given a pound for everytime I read analysts say "should" "could" "might" "suggests" "possibly" "predicted" "forecast" I could retire rich
"Some say the City is to blame for causing false optimism about the economy"
....of course they are..they try to create business in the City..every day there are positive and negative statistics for optimists and pessimists and hence buyers and sellers..its how the markets work..are we suprised? not really
- Michael, London UK, 25/07/2009 21:10
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As i posted earlier in the week the buzz words for November will be 'Double dip'.Anyone with substanstial shares in construction, breweries and car manufacture would be wise to avail themselves of them.
- Leonard Lillywhites, N.London, 24/07/2009 17:53
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It may be worse than forecast, but it was better than "real" people expected.
The guilty will get away with the damage they have done of course, and are protected and cushioned from the effects, at least in relative terms. The real issues are: How do we limit the impact on people who have, or may, lose their jobs? How to limit the impact on those who cannot pay their bills so they don't lose their homes? How do we reinvigirate the economy so that people can get their lives back on an even keel? And most critically, what can be done to stop this happening again?
If people are incentivised to make money whatever the long term consequences why are we surprised that they ignore the risks to others just to maximise their bonuses? Perhaps the smart people who developed the bonus regimes, and the greedy people who stuffed their pockets without regard to the impact on others, would like to put some of their ill gotten gains into a charity for the victims?
Now that would be nice!
- Toby, London, 24/07/2009 17:40
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if the Uk was a business and
it recruited, hired & extortionately rewarded it's staff for failure, corruption, nepotism & hubris
& it didn't make money so it borrowed huge sums to pretend it made money
and when it's debts to investors ran out - the equally daft government gave it £100s of bns of taxpayers money.
Q. of what value is the opinion of their recruits
Q. what do you think will happen to the busines?
ans on a postcard
- Oilthieves, bucks, 24/07/2009 17:08
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So our incompetent Prime Minister and Chancellor gave their parasitic friends in the City loads of our money and it hasn't done any good - is that really surprising? Misreading markets seems to be the one thing in which so called City experts have been consistent. The reckless finanial stimuli have only further debauched our economy and, as there is no possibility of more because the public finances are so frail, we can now confidently expect unemployment to soar and the pound to come under intense pressure - the simple truth is that you can't borrow your way out of debt. The adrenalin shots have worn off and the patient is about to collapse again.
- Richard Kennard, Welling, 24/07/2009 16:50
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The City experts should not worry, or have any fears; New Labour will still be in-power till next year; plenty of time for them to pump more billions from Brown, to tide them over till their Tory friends get back in power.
Then it will be business as usual for the City.
- Mickinlondon, london., 24/07/2009 16:34
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None of these over-rated bingo callers predicted the worst recession since the war. Why are we looking at them to forecast an upturn?
- Darren, london, 24/07/2009 15:54
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