Summer Olympics Won't Save U.K. Economy

Second quarter U.K. GDP was even weaker than I, and almost all other analysts, thought it would be, contracting by 0.7% (2.8% at an annualized rate) compared to the first quarter and by 0.8% compared to Q2 2011. The drop reflected to some extent effects of the Queens Diamond Jubilee and could also to a small extent be an illusion reflecting a lack of adjustment for terms of trade improvements, but there is little doubt that there is a real underlying contraction.

The fact that the Queens Diamond Jubilee was a one time event that will be reversed will be positive for the third quarter number. But what about the soon upcoming Summer Olympics that will be held in London?

Well, that too will provide support as it will increase the number of tourists in the London area and also enable for example hotels and hostels to charge higher prices.  However while the Olympics and the reversal of the Queens Diamond Jubilee might provide enough support to push third quarter growth above zero they won't end the underlying decline especially as exports are hit by the reduction in demand from the debt crisis and by the overvalued pound.