OECD predicts recession in the UK

People in a cafe in London Service sector figures for January showed growth in distribution, hotels and restaurants

The UK economy will contract in the first three months of 2012, taking the country back into recession, according to the Organisation for Economic Co-operation and Development (OECD).

But many other analysts are predicting economic growth in the first quarter.

Figures from the Office for National Statistics (ONS) on Thursday showed the UK service sector grew 0.2% in January compared with December.

The figure is a major component of the growth figures for the first quarter.

The biggest contribution to the monthly increase came from deliveries, hotels and restaurants.

Gross domestic product (GDP) figures for the first three months of 2012 will be released by the ONS on 25 April.

The OECD is predicting an annualised contraction of 0.4% for GDP in the first quarter, which would suggest a 0.1% contraction compared with the previous quarter, which is the headline figure that the ONS releases.

"This is a forecast... Our own forecast from our own independent body, which we published last week, says we are going to avoid a recession," said Chancellor George Osborne.

The Office for Budget Responsibility has predicted that there will be growth in the first quarter of 2012.

On Wednesday, the figure for the fourth quarter of 2011 was revised to show the economy contracted by 0.3%, more than earlier estimates had suggested.

The revision was due to the service sector having been less strong than previously thought.

Shadow chancellor Ed Balls blamed government policy for the lack of growth.

"Last year the deputy head of the OECD said if growth is slower than expected the government should slow down the pace of tax rises and spending cuts.

"That is what the OECD is now forecasting and, with our economy flatlining for over a year, it's time the chancellor listened to wise advice," Mr Balls said.

Zig-zag economy

The UK has been alternating between quarters of growth and contraction since the middle of 2010.

Chart showing GDP for past six quarters

Bank of England governor Sir Mervyn King has forecast that the economy will continue to zig zag between positive and negative growth this year.

He predicted that the economy would contract in the second quarter of 2012 as a result of there being an extra bank holiday in June for the Diamond Jubilee.

The service sector accounts for about three-quarters of the UK economy.

The 0.2% increase in January followed 0.3% growth in December.

"While services output was hardly spectacular in January, it was a solid enough performance after a decent gain in December and supports hopes that the economy has returned to growth in the first quarter," said Howard Archer at IHS Global Insight.

Encouraging signs

The chancellor pointed to some positive recent data.

"We will see what the data shows in the next few weeks but there's been some more encouraging economic signs in recent months," Mr Osborne said.

The purchasing managers' index (PMI) for the service sector in February suggested the sector was still growing, but at a slower pace.

But there have been weaker signs coming from other parts of the economy.

The index of production, which includes the manufacturing sector, unexpectedly fell 0.4% in January from December.

The PMI for manufacturing in February suggested it had slowed down further compared with January.


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  • rate this

    Comment number 127.

    I wonder if the definition of the word "recession" should be revised anyway. Even though we haven't had 2 consecutive quarters of negative growth in a few years, the reality is that the people of the UK have been living through a deep, continuous recession for about half a decade. Regardless of the growth figures, the government needs to step up and effect some real change in our lives.

  • rate this

    Comment number 107.

    Best way to stimulate the economy is to create jobs. The easiest way to create jobs is to bring back all those that have been outsourced overseas to places like India. This could be achieved by placing a hefty levy on companies for each job they outsource. This will reduce unemployment and produce more tax revenue and benefit the economy without resorting to so many service cuts.

  • rate this

    Comment number 17.

    The days of never ending growth based of cheap credit fuelled consumerism is well and truly over and it is going to take us many years to adjust our economy so that the UK pays its way in the world.

    Expect Western living standards to drop even further during the next decade and beyond as we all embark on a race to the middle with the developing global economies.

    The good times are gone forever.

  • rate this

    Comment number 5.

    The country is run by money and the tax changes are there to bring back stability to rich people. When they are happy again, and their businesses and investments start picking up, I guess the money will filter down to the rest of us. People voted for change when they ditched labour, and now we all have to make sacrifices so our overlords can achieve stability once more. It's like medievel surfdom!

  • rate this

    Comment number 1.

    So it seems the austerity measure's and a tax reduction for the rich WILL NOT stimulate the economy....

    Who'd have thought


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