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
    +4

    Comment number 59.

    Well, this was pretty much guaranteed the moment David Cameron took power. Perhaps it was inevitable anyway - we'll never know. But without a doubt it finally puts paid to the claim that the Tories can provide some kind of credible economic alternative to Labour. I suppose one could allow them a double or even triple-dip and still hope they will fix it eventually, but the fact is they have failed.

  • rate this
    +29

    Comment number 58.

    There are people in this country who complain as they only "earn" £26k on benefits. We keep terrorists we cant remove at a cost of Millions. Two of my friends retired 4 years ago, neither earned £26K in heir entire working lives. They had to do something sensible and that was to live within their means. They are not poor and not rich. But are happy. Its a shame we as a country cant do the same

  • rate this
    +8

    Comment number 57.

    I assume that when they refer to a double dip recession they are referring to the occupants of No 10 and No 11 respectively.

    Why is it everyone one else can see our economy is not going anywhere yet these two people and their cronies cant.

    Oh, I forgot, its Europe’s fault, it everyone’s else fault but not theirs.

  • rate this
    -13

    Comment number 56.

    I don't know what's more irritating: a 'conservative' PM talking about government "generating growth"; or Red Ed trying to boil down an immensly complicated economic problem by effectively saying it's all Dave and George's fault. Economies are too complicated to try and plan, why don't the politicians get out of the road (take their red tape with them) and let the economy stabilise by itself.

  • rate this
    +3

    Comment number 55.

    Look at Clegg in the background while Cameron speaks. He seems to have no energy left. He never chose to be an a coalition government, and so far, what it has done has gone against all of the Lib Dems policies - Raising uni tuition fees being one example.

    His heart is not in it and I feel sorry for him, I don't know why to be honest, I actually feel that it's mostly Cameron's fault.

  • rate this
    +105

    Comment number 54.

    28

    Recession: A time when rich people don't make as much money as they used to. Joe Public needs to sort that out for some reason.
    _____

    Actually the super-wealthy are making more than they ever have done at any point in history. They're also acquiring public services for rock-bottom prices as part of this "austerity" drive to prop up rampant Toryism. We're viewed as slaves, wake up everyone.

  • rate this
    +3

    Comment number 53.

    Time and time again the economists who advise governments and who speak to the media get it wrong and the UK suffers, but they don’t. Hold them accountable for their bad advice, or simply realise that their track record is awful and sack them. The Monetarist v Keynesian debate needs to be resolved because real people suffer when it is not.

  • rate this
    +6

    Comment number 52.

    Dave it's time to pick up the metaphoric revolver off the silver tray take a gulp of the Glenmorangie and then do the decent thing...
    and put GO and JH out their misery.

    Oh! and make sure there is one more left in the chamber for yourself while your at it.

  • rate this
    +24

    Comment number 51.

    we might be in recession - but i work hard and I'm doing well for my family. Thats all i care about. The only people who should be helped by the govt are the disabled and elderly, the rest need to help themselves. We need to stop this handout culture.

  • rate this
    +5

    Comment number 50.

    We're back in recession? Raise your hand if you're actually surprised by this.
    Now I imagine Osborne has his hand up, but the rest of us don't. Why is that? Perhaps it's because we all have some common sense and foresight, or maybe it's because this is all a game and we're being played. Personally, I think it's because we all know what's happening and can see through their "delaying tactics".

  • rate this
    0

    Comment number 49.

    There is only one way to get out of this mess. Slash government spending and reduce taxes for all working people. Let people have more of their own, hard earned money to spend on the things they want rather than useless and wasteful government spending. If there is still anyone who thinks more taxes is the answer they can pay my share!

  • rate this
    +6

    Comment number 48.

    Time for the out of touch Dave, Cleggy and Ossie to resign and call an election. They have failed miserably. Their policies are increasingly irrelevant and damaging.

  • rate this
    +1

    Comment number 47.

    HMG really have no idea what they are doing. The cust were too deep and too fast just a labour argued they were and here we are 'in it together'. Time to grow ourselves out of recession not 'cut' outrselves out of recession. Time to enourage investment and boost markets for expansion and export. The £ is too strong already thanks to Euro weakness and there is no way to cut interest rates further.

  • rate this
    -1

    Comment number 46.

    I expect in a few days time, some overpaid office monkey will have miraculously reinterpreted the figures and found out we actually had growth so we can all breathe a sigh of relief....we all know that every set of stats that come out are in pretty short order refuted by some other 'body'.

  • rate this
    +5

    Comment number 45.

    Calm down everyone, I'm sure we'll see a massive growth in the third quarter when the huge amount of money we're promised comes in from the Olympics. Why, I wouldn't be surprised if we recouped all of the £9,435,000,000 cost of the Olympics in that one quarter, plus several billion more. I can only feel sorry for France, who missed out on this excellent source of income, c'est la vie.

  • rate this
    +5

    Comment number 44.

    (Cameron said) the government would stick with its plans and do "everything we can" to generate growth.

    Yeah, because raising fuel prices, cutting jobs and reducing wages is REALLY going to encourage people to start spending...

    The Tory policy so far has been purely ideological (i.e. helping their rich mates), and has had seemingly nothing to do with economic recovery, to wider detriment.

  • Comment number 43.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    0

    Comment number 42.

    General Election NOW please.

  • rate this
    -2

    Comment number 41.

    We have been told for the last couple of years this wasn't going to happen, now it has what does that tell you about competance? I was stunned when Osborne attacked the OBR for changing predictions when government policy changed. It seems he honestly didn't expect this to happen. Could we have some properly qualified people in power like other countries? EU not in recession yet note!

  • rate this
    0

    Comment number 40.

    This government is destoying business & consumer confidence. Just as Thatcher did before them. (Not that the rest are any better)

 

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