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 339.

    Well, our state pensions have gone up by £18 per week and presumably we've not been singled out for preferential treatment. That will more than cover the price increases to tinned tomatoes, cereals and toilet rolls.

  • rate this
    0

    Comment number 338.

    288.SeeDubya

    "I just need to look out of my office window. I remember once counting seventeen tower cranes and now I can't see a single one. "

    Thank you for that: I now have Tennessee Ernie Ford's "Buddy can you spare a dime?" playing in my head!

  • rate this
    -2

    Comment number 337.

    306.
    ______

    Give me an example of a truly free-market that has existed since the '70s? Friedman advocated less state regulation of markets, instead we have seen an ever expanding (self-appointed) regulatory role being taken on by the state. You only have to look at the capital adequacy rules imposed on banks, and the CDOs, etc. that these rules encouranged the creation of, to see the damage done.

  • rate this
    -1

    Comment number 336.

    I think everyone agrees that austerity is rightly here to stay - we do not want to end up in the mess the southern European countries (and also France once the 'loony left get elected) are in. The UK must appease the markets, and the public sector must learn that its size, pay and benefits are massively unsustainable.

  • rate this
    +3

    Comment number 335.

    The long and the short of it who's to blame:
    Government policies (and the type of people attracted to politics) dating back to the 1930's on taxation
    Big businesses - including Petrol firms and Supermarkets
    Us for Apathy
    Banks for greed
    Estate agents and valuers for pushing house prices up (HOW can a house that in 1970 cost 1,800 really be worht £1mill+?)
    And dont forget No Win No fee Law sharks

  • rate this
    +6

    Comment number 334.

    What you can expect Mr. Osborne, you did all the cut and increasing everything, hence only some people who can buy and some even on the poverty. no buying power=no growth. Of course this recessions won't impact the posh boys.

  • rate this
    +16

    Comment number 333.

    291. Bigry666
    If you personally owe money the worst thing you can do is borrow more, but yet that's exactly what labour and some of the public want.

    Not actually true. I borrowed the money to buy my house. It is now worth ten times what I paid for it. If I'd tried to save up the money before buying it I would have never got it and also wasted a fortune on rent. Borrowing isn't inherently bad.

  • rate this
    +3

    Comment number 332.

    I hate this idea that increasing the manufacturing base is the solution to everything. We can't compete with china because employment is too expencive here. if people want manufacturing back, we all would need to take a huge pay cut (ie less than minimum wage) which would put us back in the dark ages.

  • rate this
    +6

    Comment number 331.

    Simple lesson in economics: The health of the economy is determined by the flow of money through the system. QE puts money into bank vaults and then into foreign trusts when the bankers pay it themselves in bonuses. If the government really wanted the recession to end they would give money to ordinary people who would spend in this country. Food vouchers would be a start.

  • rate this
    -40

    Comment number 330.

    UK companies must cut costs to compete with the world's major economies.

    The minimum wage & the horrendous costs associated with implementing elf&safety laws must go!

    Unions must be banned. The gov't must make it easier for companies to lay off bad workers.

    Then the economy will thrive!!

  • rate this
    +3

    Comment number 329.

    It`s all making life that much more interesting or difficult just watching government spending on other countries before ensuring our country all in order.............it is ludicrous and heartbreaking for most of the British people…….The bankers and government pay outs are still far too high................... Heads must roll metaphorically speaking.

  • rate this
    +3

    Comment number 328.

    If this government had any credibility left it was on the basis of it's self proclaimed boast to be in control of the economic "recovery" and rendering the UK a "Safe Haven".
    Evidently simply more idle boasts from a couple of out of their depth posh boys.

    Irrespective of what you think about the Labour alternative (at least they have one) plan austerity (unless you are rich) isn't working

  • rate this
    0

    Comment number 327.

    Well this only happens because our stupid government raises fuel prices, freezes wages, increase the cost of living, making the rich become richer and the poorer become poorer. Adding an extra 5% to benefits while penalising hard workers its bound to happen. £10 billion to the IMF what do you expect?

  • rate this
    +3

    Comment number 326.

    Blame everyone but ourselves is the current government's message. If ministers had any idea how most working class people are trying to survive they would be shocked-or maybe not. They don't need to worry about having too much month left at the end of their money. Things can only get bitter.

  • rate this
    +6

    Comment number 325.

    When the effects of the last Tory budget - less taxes for people who pay no tax and reduced costs of horse fodder - kick in we will start to see the the true benefits to the economy.

  • rate this
    -1

    Comment number 324.

    Lessons from economies that have relatively prospered (eg India, Australia, China, Germany) and suffered (eg Spain, Portugal, Greece, Italy) since the 2008 crash, suggest that Milliband’s contribution to this debate is not cogent.

  • rate this
    -1

    Comment number 323.

    I don’t think the party that let the economy get into a private sector boom, funded by wreckless bank lending, supervised by the FSA, who were set-up by, and reported to Godon Brown, while simultaneously running a deficit by spending money we didn’t have on tax revenues from a phoney boom and running a deficit (see http://news.bbc.co.uk/1/hi/business/4699407.stm )

    is qualified to comment??

  • rate this
    +6

    Comment number 322.

    One thing that affects the costs incurred by every business, every individual and the Government themselves is the effect of the ridiculously high cost of Diesel, yet the Government continue to raise duties even when there is no credible alternative for the majority of the country!

  • rate this
    +2

    Comment number 321.

    Only 10 days ago the International Business times was stating that growth in London and the West midlands meant that we would avoid a DDR. Thats the so called experts talking. So G Thirde, where do you get your 4% growth figures for the midlands from?

  • rate this
    +6

    Comment number 320.

    Most western countries have high levels of borrowing and debt, nearly all of it as a result of the collapse in the banking system in 2007/8. As the present Government (both parts of it) supported Labour spending plans right up until 2008 - and in the Liberals' case until after the election in 2010 - it is difficult for them to argue it is all somebody else's fault.

    Come clean Mr Cameron !"

 

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