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Economy could be affected by Diamond Jubilee

The Queen's diamond jubilee celebrations could damage economic growth in the UK this year according to economists.

Despite the expected boost to retail and tourism, economists estimate that the extra bank holiday on June 5 could reduce gross domestic product (GDP) in the second quarter of the year by 0.5%.

The warning comes at a time when many forecasters are predicting a return to recession in the first quarter of 2012, and growth for the whole year of just 0.6%.

In the final quarter of 2011, GDP declined by 0.2%.

The prediction came on the day the Queen marked her 60th anniversary on the throne.

Last year, the additional bank holiday for the royal wedding of the Duke and Duchess of Cambridge was found to have hit growth in the second quarter by up to 0.5%.

However, the financial impact of the diamond jubilee, as with the wedding last April, will be partially offset by a boost to hotel trade, alcohol sales and souvenir merchandising.

Alan Clarke, UK and eurozone economist at Scotiabank, said: "I expect a drag on growth of at least as much as during the Kate and William wedding, and possibly more.

"The royal wedding fell around Easter, when people normally take time off work. That probably diluted the effect on growth last year, which the ONS (Office for National Statistics) estimated to be worth around 0.5% of GDP.

"That isn't the case in June when this extra bank holiday will fall. So the disturbance could actually provoke a very low GDP reading for the second quarter."

In June 2002, an extra bank holiday was created for the Queen's golden jubilee.

The late May bank holiday was also moved to the start of June. Manufacturing fell by 5.4% between May 2002 and June 2002, while the services sector fell 1.9%, with changes in working patterns causing the fall.

However, manufacturing and services bounced back in July.

Howard Archer, UK and European economist at IHS Global Insight, said the impact of the Diamond Jubilee over the whole year is likely to be modest.

He said: "The major cost to the economy is that it is an extra day's public holiday. In addition, more people than normal may well take off time from work to have an extended break. This could lead to some smaller companies shutting down for a few days."

Mr Archer added: "There will be some beneficial factors to the economy - notably sales of jubilee-related souvenirs, and also sales of food and drink for street parties. Some tourists may also be attracted by the jubilee pageantry and events."

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