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 35.

    Soon be time for the pitchforks and executions for corruption in Trafalgar Sq. The trouble is its the politicians and crap economists who are living too long.. can you imagine MK at the BoE aged 85? Perish the thought

  • rate this

    Comment number 34.

    I'm sure people who lived through the Great Depression thought the same as what we are now. It wont last forever, we will one day be out of this economic crisis and things will be rosy - until the next one. Its the cycle of regulation/deregulation and above all human greed.

  • rate this

    Comment number 33.

    Good God you don't need the OECD to tell us what is plain as a bl**dy pike staff. The nation is in sh*t that is deep and it is going to take a long time to dig itself out if at all.

  • rate this

    Comment number 32.

    I think the government are well aware it's touch and go whether the economy enters recession or not. That maybe why they encouraged this panic buying of petrol over the past few days, just before the 1st quarter ends; it brings forward perhaps hundreds of millions pounds spending. It just might make the difference of an extra 0.1% growth, thereby escaping a technical recession

  • rate this

    Comment number 31.

    How many economists does it take to change a light bulb?

  • rate this

    Comment number 30.

    Is it any surprise? Our Prime Minister is an idiot. He actually had the nerve to say he was putting 20% VAT on pasties "to protect the small fried chicken outlet".
    Obviously Colonel Sanders had paid a quarter of a million to bring a bucket of spicy wings round to Dave's one evening.

  • rate this

    Comment number 29.

    This only confirms what we, who live here, hve known for months. You only have to walk round the shops to see that people are not buying non essential items. This country is not just sliding into a double dip, it is heading for full blown recession

  • rate this

    Comment number 28.

    I actually dont care about "growth" I would rather we were self sufficient. Non stop growth will see the UK covered in concrete in the future. What good is growth is we dont live in a nice country we can enjoy.

  • rate this

    Comment number 27.

    @22 "@16 - what is so conveniently forgotten is that the 1% contribute around 26% of the total raised in taxes. Check the facts out first."

    And not duty on fuel, vat on electricity etc ? .

    Or the millions of people who may actually work for certain people of your '1%' who also pay PAYE ,vat,buy fuel for vechicles and heat homes.

    Still not seen 'your facts'

  • rate this

    Comment number 26.

    It would be nice if the present government, whilst feathering there nests would look at the underlying malaise of this country,bought about by the 1980's government led by our illustrious Mrs T.when she decided this country could survive on a service industry economy..They were short sighted then and nothing has changed.Qoute from harold mcmillan at the time"why are we selling the family silver?"

  • rate this

    Comment number 25.

    What the Daily Telegraph neo-liberal bloggers who stray onto this site must realise is that government spending can & MUST create wealth. This coalition catastrophe told the electorate that "govt. cant create wealth only the private sector can blah.. blah". Now look at the mess we face! Not a double dip more like an infinite wave. More state control plse. like China.

  • rate this

    Comment number 24.

    Once again Keynes has been proved right. Balanced cuts & moerate assistance to growth as advocated by Darling & Cable in the pre election debate with Osborne. Shame Cable back tracked --we have the wrong coalition.One only has to look at growth figures in the last quarter of 2009 & the first half of 2010 ,as a result of emergancy action by Labour the economy,whilst very fragile was perking up .

  • rate this

    Comment number 23.

    Prices going up, less jobs, jobs with poor pay, zero from savings and paying for banker's mistakes.

    I think with all this, we'll be lucky to buy a hot pie soon!

  • rate this

    Comment number 22.

    @16 - what is so conveniently forgotten is that the 1% contribute around 26% of the total raised in taxes. Check the facts out first.

  • rate this

    Comment number 21.

    Good to see the "Doom and Gloom" mongers are given soooooo much air time and credance by the British Media. In my opinion the BBC/ITV/SKY News Channels have a lot to do with keeping the UK in Recession, by going on about and saying how bad it is. Why would anyone try to do something if the media is constantly telling them "don't bother, you CANNOT succeed!"

  • rate this

    Comment number 20.

    I wish organisations like this would just shut up and go away because all they do is inject doubt which undermines confidence and which further hampers recovery.

  • rate this

    Comment number 19.

    @7. Dean

    Indeed, I was wondering what the news was that would need overeing up!

    A nation like kiddies getting their photo taken... "Look at the monkey, look at the monkey!"

  • rate this

    Comment number 18.

    It annoys me when people go on about spending to grow. If you borrow to create growth its a false economy.

  • 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 16.

    Hardly news. Costs in fuel, transport, & food have risen sharply. Wages are low & no increases in sight, unless you are a banker. Normal UK folk have no cash to spend but have to repay the millionaires losses on USA housing. It is called `Austerity` but should be called Robbery. I don`t live in UK but normal folk seem to get a v poor deal. 1% super rich, the rest struggling. Hardly a fair society


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