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 15.

    "Just waiting for people to come out slating the government for cutting public spending... the same people who moaned about the debt Labour got us into."

    I take my advice from the Tories who, when Labour were in power, blamed them for everything because it was "on their watch". The gave the advice, can they take it?

  • rate this

    Comment number 14.

    What's the betting that GO is out of number 11 by December?

  • rate this

    Comment number 13.

    No wonder.

    Theres no cash left after paying all the massively inflated bills, to which we have "No choice"

    Why not put interest rates up as well, we can hold hands with Greece & go "Bang" together.

  • rate this

    Comment number 12.

    Perhaps now the government will learn that economic growth can't be from the top down. If the working and middle classes can't afford anything because the government has been pandering to the ultra-rich, then of course the economy will slow and then contract. I'd like to see the Lib Dems pull out of the coalition and trigger a new election before the Tories ruin the country.

  • rate this

    Comment number 11.

    The IFS think only 12% of the planned cuts have been implemented so far. These further 88% of the cuts are going to drag the economy down even further. The ordinary person in the street is paying the price while the richest get pay cuts. Instead of tackling tax avoidance it is used as an excuse for further tax cuts for the rich.

    Labour are the same. We need a new workers party.

  • rate this

    Comment number 10.

    Just waiting for people to come out slating the government for cutting public spending... the same people who moaned about the debt Labour got us into.

  • rate this

    Comment number 9.

    The trouble is, economists don't seem that good at make making economic predictions, do they ?

  • rate this

    Comment number 8.

    How can a government relying ONLY on taxes (income/NI/VAT/fuel duty/stamp duty..) ever grow and prosper? The only way to prosperity is hard work, willingness to work and support for people who have the skills to work. Its simple, if you dont "earn" your food, you will tend to overeat, become unfit and obese, resulting in more resource drain on the NHS. similarly...

  • rate this

    Comment number 7.

    So, let me get this right? If the UK economy contracts for the 3 months from January 1st to March 31st then we're in recession?

    And being in recession is bad publicity for government?

    And the Government are now, all of a sudden, suggesting everyone spend money on fuel (many of whom will pop into the supermarket to "stock up" too, just in case).

    What an amazing, amazing co-incidence...

  • rate this

    Comment number 6.

    Well, let us not talk ourselves into a recession. for heaven's sake.
    Economic matters have a lot to do with confidence and expectations.

  • 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 4.

    "He [Mervyn King] 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."

    What a totally stupid comment. As if one day of extra bank holiday was going to cause a recession! Nonsense. Here in the UK we already have the lowest number of bank holidays of any industrialised country.

  • rate this

    Comment number 3.

    At least we know why the Government of the day have created panic buying at the forecourt....Petrol & diesel sales up by over 90%......mmmm...think of all that additional revenue through VAT & Duty....a lovely little boost at the end of Q1...and they rack up the public hatred of unison before a strike has even been called.
    Quite clever for this idiot govt.

  • rate this

    Comment number 2.

    Is this news? I don't think anyone would be shocked to hear that we're back in recession.

  • 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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