Jubilee holiday blamed for keeping UK in recession

The economy failed to grow in the second quarter of 2012 but will enjoy an “Indian summer” as falling inflation helps hard-pressed households, according to one forecaster.
By The Newsroom
Published 16th Jul 2012, 07:00 BST

The Ernst & Young Item Club believes the extra bank holiday for the Queen’s Diamond Jubilee helped keep the economy in its double-dip recession in the last quarter, capping a “dismal” first half in which confidence was hit by the eurozone debt crisis.

But it predicts a return to growth in this quarter as faster-than-expected falls in inflation give consumers more money to spend on the high street, while the Olympics will provide a further boost.

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However, the second-half growth will merely cancel out the first half falls, meaning the economy will be stagnant for 2012 as a whole. Just three months ago, the group predicted 2012 growth of 0.4 per cent.

It said inflation, which was at 2.8 per cent in May, is set to continue to drop to 1.7 per cent at the end of 2012, helped by the Chancellor’s recent decision to postpone the increase in fuel duty and falling energy prices.

Chief economic adviser Peter Spencer said: “Spiralling inflation has cut real wages by 7.5 per cent over the last four years, but the squeeze is almost over. The boost to household finances and the subsequent pick-up in spending should be enough to push the UK back into positive territory this year.”