UK economy in double-dip recession

 

'Everything is going up in the shops and wages aren't'

The UK economy has returned to recession, after shrinking by 0.2% in the first three months of 2012.

A sharp fall in construction output was behind the surprise contraction, the Office for National Statistics said.

A recession is defined as two consecutive quarters of contraction. The economy shrank by 0.3% in the fourth quarter of 2011.

BBC economics editor Stephanie Flanders says it "adds to the picture that the economy is bumping along the bottom".

She said economic output was slightly smaller now than it was in the autumn of 2010.

Wednesday's figure is an early estimate and is subject to at least two further revisions in the coming months. It is compiled using 40% of the data gathered for later revisions.

The UK economy was last in recession in 2009.

'Catastrophic'

Prime Minister David Cameron said the figures were "very, very disappointing".

Ed Miliband: "Arrogant, posh boys just don't get it"

"I don't seek to excuse them, I don't seek to try to explain them away," he said at Prime Minister's Questions.

"There is no complacency at all in this government in dealing with what is a very tough situation, which frankly has just got tougher."

He said it was "painstaking, difficult" work, but the government would stick with its plans and do "everything we can" to generate growth.

Labour leader Ed Miliband said the figures were "catastrophic" and asked Mr Cameron what his excuse was.

"This is a recession made by him and the chancellor in Downing Street. It is his catastrophic economic policy that has landed us back in recession," Mr Miliband said.

Construction questions

The ONS said output of the production industries decreased by 0.4%, construction decreased by 3%. Output of the services sector, which includes retail, increased by 0.1%, after falling a month earlier.

These figures are slightly worse than many expected, but the fact that the UK is now technically back in recession should not detract from the underlying reality, which is very much as predicted.

The UK economy has been bumping along the bottom for more than a year and is still struggling to gain momentum.

Many have questioned the dire numbers for the construction sector, which accounts for less than 7% of the economy, but has done much to pull the GDP figure into negative territory.

The sharp fall in output from the production sector is also at odds with recent business surveys (though manufacturing has not fallen as the sector overall).

However, this preliminary figure is consistent with the message coming from official and private data - that the UK was once again relying heavily on services and consumption by households. That suggests the recovery will continue to be weak, though whether we will see further quarters of negative growth is very much an open question.

It added that a fall in government spending had contributed to the particularly large fall in the construction sector.

"The huge cuts to public spending - 25% in public sector housing and 24% in public non-housing and with a further 10% cuts to both anticipated for 2013 - have left a hole too big for other sectors to fill," said Judy Lowe, deputy chairman of industry body CITB-ConstructionSkills, said.

Some have questioned the validity of the ONS's figures, particularly on the construction industry, which has been particularly volatile in recent quarters.

But Joe Grice, chief economic adviser to the ONS, said the construction data was based on a survey of 8,000 companies and had been carefully checked and double checked.

The latest figures supported the view that the economy had been "flattish" in the past few quarters, he added.

Over the last year and a half, the economy has fluctuated between quarters of growth and contraction.

Bank of England governor Sir Mervyn King has previously warned that the economy will continue to "zig zag" this year.

He had forecast growth in the first quarter but then a contraction in the second quarter, when the extra bank holiday for the Queen's Diamond Jubilee is expected to reduce output.

'At odds'

"It is clearly not good news, the missing link in the economy has been confidence," said Graeme Leach, chief economist at the Institute of Directors told BBC News.

"We're part of a very strong automotive sector," says Midlands car parts maker Lander Automotive

"These are relatively small falls, so we shouldn't be too alarmist.

"[But] regardless of the figures, it is the message that comes out to business - to be cautious - exactly when we want them to be a little more aggressive in terms of recruitment and investment."

However, some pointed to other recent business surveys, which painted a more positive picture of the economy.

"These figures are at odds with the experiences of many UK businesses, which continue to operate with guarded optimism," said David Kern, chief economist at the British Chambers of Commerce.

He added that he expected the preliminary estimate to be revised upwards when more information became available.

The estimate for construction output is based on published data for the first two months of the quarter, and an estimation for the third month.

But the ONS pointed out that, while there was "a tendency for upward revisions" to construction, March would need to be "exceptionally strong" in the construction sector to produce growth in the quarter.

The first estimate of GDP for the last three months of 2011 showed a contraction of 0.2%, which was later revised to a contraction of 0.3%.

 

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  • rate this
    +5

    Comment number 279.

    Forget the technical definition of recession. I real terms, real people have been in a recession for years.

  • rate this
    +1

    Comment number 278.

    Miliband ‘This is a recession made by him’. Breath-taking inaccuracy!

    Milibands the arrogant one.

    It's the same recession started when Labour were in Govt.

    They spent us into recession, running a deficit while we were in a boom! Many articles show this e.g

    http://news.bbc.co.uk/1/hi/business/3412495.stm

    To imply Labours ‘deficeit’ can be fixed painlessly in 2 yrs is just dishonest.

  • rate this
    +3

    Comment number 277.

    257 zzgrark
    "That's because the $ is the global reserve currency "

    There is no such thing as a 'reserve currency' per se. It only applies where currencies are pegged to the dollar. Since 1971 currency pegs were dropped, and the term reserve currency ceased to have any meaning, yet it was still taught as fact in economic text books.

  • rate this
    +3

    Comment number 276.

    Ken@223...there is nothing wrong with debt...as long as you can repay it!

    Problem is hundreds of thousands of people who borrowed cannot, will not and could not repay the debt.

    Thousands of businesses also failed to repay debt.

    Dozens of countries also failed to repay debt....

    That's the problem.

  • rate this
    +3

    Comment number 275.

    Whatever the blame given to Labour's borrowing the Banks must shoulder some blame.
    The Tories have shown 2 yrs of incompetence. Working Tax Credit cuts make working families sign unemployed. Pensioners get less tax relief against inflation.
    Ever 'tax the rich policy' is a gimmick. Stagnant economy and inflation reduce spending power. The decline will continue. And now a hint of media corruption.

  • rate this
    +1

    Comment number 274.

    Not far now - the time is nearly ripe - the people are clamouring for a socially fair government that care for their sovereign nation. Inflation is all around, pride has been wounded, citizenship is topical, years of austerity are taking their toll.

    Is the new political party ready yet? Bring it out for the next election.

    But shhh!. Whatever you do, don't call it the national socialist party!

  • rate this
    0

    Comment number 273.

    The shrinkage is due to construction. Keeping land/house prices artificially high needs to be outlawed. The correction has to occur and building commence.

  • rate this
    -1

    Comment number 272.

    How does Cameron expect there to be growth if the government is artificially keeping interest rates v.low at 1%? Nobody is going to want to save, and thus enable banks to lend capital to entrepreneurs and businesses that want to expand. Also, what about regulations? - They're higher than ever and are imposing a massive time/money burden on businesses, and also acting as a barrier to entry.

  • rate this
    -1

    Comment number 271.

    Double dip? Houmous AND guacamole?

    Why is anyone surprised? It is only down to our ever-increasing indebtedness that we are not in a slump with millions and millions of unemployed with food riots.

    Perhaps it would be better if it was worse then somebody would realise they had to do something other than bash the credit card.

  • rate this
    +1

    Comment number 270.

    So - getting the nation to fill up its cars (and jerrycans) with fuel didn't work after all...

  • rate this
    0

    Comment number 269.

    219. AndyPandy
    L is for Labour, L is for Lice.


    C is for Conservative, C is for expletive deleted

    T is for Tory, T is for expletive deleted.


    226. credible58

    Close. I would just have a poster for them saying "It's YOUR fault, stupid"

  • rate this
    +5

    Comment number 268.

    SHARDUNN

    There will be no big new social house building programme.

    People are living in sheds because they cant afford to buy houses and there are no council houses left.

    You need land to put the houses on and as we all know a lovely old woman who wears a fancy bejewelled hat owns it all

    When you wake up to what is REALLY going on you will be amazed.

    GOD SAVE OUR FREEMAN.

  • rate this
    +2

    Comment number 267.

    To Argent Pur #20
    Ok I agree with some of your words, but .. not propping up banks? Really? Are you saying if your bank account was inaccessible tomorrow, you'd roll over and say the governement shouldn't help you out? Banks have to be proped up to avoid the worst thing of all - total social unrest. That's what Alistair Darling knew with Northern Rock and potentially the rest of our banks.

  • rate this
    +2

    Comment number 266.

    248.shardunn

    Isn't it time we started building some much needed and affordable social housing?
    ---
    Social housing! For ordinary people! Whatever next, give women the vote!

  • rate this
    +4

    Comment number 265.

    oh come on folks, this was entirely predictable considering the mess the Private banking sector got itself in...

  • rate this
    +9

    Comment number 264.

    It's not a double dip recession - we never really got out of the first one. The whole thing is just essentially an definition trick. A recession is only declared when GDP goes down for two quarters in a row, yet it only takes one rise to say we are out of recession. What nonsense...we have been in a recession for 2-3 years now.

  • rate this
    +12

    Comment number 263.

    1. We are in an entirely predictable & predicted DEPRESSION.

    2. The Depression is similar to that of the 1870s

    3. The cause (&hence the solution) is the property/banking bubble.

    4. The solution is to return the price of money to prudential levels.

    It is curious that Stephanie Flanders says that we have never seen this before - this is the Harvard view - reject all real historic parallels.

  • rate this
    -1

    Comment number 262.

    I work in Plant Hire. The construction industy has flagged a little because of the terrible weather, no one knew when winter was actually going to bite and now the rain is putting a big dampner on general DIY. Its nothing to worry about, the latter half of this year is going to be very busy.

  • rate this
    -2

    Comment number 261.

    233.cheguevara
    Do you think I don’t work hard? I agree there are too many handouts, but your comment shows your prejudice and smugness. I suggest you look into a few cases. UK citizens do not all get the same opportunities.
    --
    Aw boo hoo. Those who succeed go out and look for, and make their own opportunities, rather than expect them to be handed on a plate. I am with Justin 33 on this.

  • rate this
    +2

    Comment number 260.

    I wonder what the figures for the rest of Europe look like.

    Hmm I bet they're all doing just dandy and we're the only ones in the same boat as Greece, Spain and Portugal. France and Germany are not doing as well as you think. The world's economy is still very fragile and to think a couple of years would sort it is a very naive and idiotic suggestion. We want it all on a plate as usual.

 

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