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
    +2

    Comment number 499.

    Forget about Plan B, we need a Plan C.

  • rate this
    +4

    Comment number 498.

    "30.
    Tsunami of Logic

    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"

    - And the people will suffer.

    - money or quality of life ? - you choose !

  • rate this
    +5

    Comment number 497.

    so other than the government is anyone surprised....

  • rate this
    -2

    Comment number 496.

    This is neither a disaster nor a catastrophe. Moving away from an economy reliant on the consumption of imported goods and speculative financial services will take time, imagination, and guts.

    There is no painless way out, Lefties!

  • rate this
    +5

    Comment number 495.

    Put up taxes, create massive unemployment, cut investment, freeze wages and create high inflation, Yes that'll stimulate growth. Thats what the little demon on GO left shoulder said, problem is it also appears to be what the one on his right shoulder said too.

  • rate this
    0

    Comment number 494.

    485.teenagehoodie
    "people prefer a government that does something rather than blame the last government"

    If you impose that theory on HYS posts will drop by 90+% !!! They all say any problem was the fault of the last gov that was not of their choice.

  • rate this
    +3

    Comment number 493.

    Double Dip from the Double Dunces - Cameron and Osborne !

    "Another fine mess you've gotten me into"

  • rate this
    +2

    Comment number 492.

    How much worse would the contraction been if it wasnt for the fuel fiascal? I think it was done in the way it was as to try and stop the double dip.

  • rate this
    +4

    Comment number 491.

    What did the Government expect they are squeezing those people who work and allowing utility companies to rip people off and constrict spending which may help the economy. Cameron/Clegg/Milliband need to stop bowing down to the city or else face a French style meltdown. Vote Independents lets give the ruling elite a kicking.

  • rate this
    +1

    Comment number 490.

    113. in_my_veiw

    Agree in principle & all Governments use construction as a safety valve to the ecconomy for quick results.

    One caveat however. Tradesmen levels are low & lack of training facility would result in massive influx of labour with unsubstanciated skill levels. If not adressed the investment would be of little value.

  • rate this
    +4

    Comment number 489.

    Smug rich boys dictating the ‘rules’ that they made up.... debating meaningless drivel whilst maintaining the ‘un-equilibrium’... dehumanising the poor masses to justify lining their own pockets ...they’re just like pigs sniffing for truffles around the rotting corpses of their insignificant victims... If this is democracy then I’m all for a ‘British’ COMMUNIST revolution!

  • rate this
    +6

    Comment number 488.

    I wonder how many people were involved in working this out, and what the cost was. All they had to do was get off their lazy behinds and walk the streets of most non London towns and cities, or visit industrial parks and see how many buildings are empty.

  • rate this
    0

    Comment number 487.

    The government needs to encourage more manufacturing industries to, and in Great Britain; and more trade with countries outside sickly Europe.

  • rate this
    +2

    Comment number 486.

    I can't quite figure out why the government continues to try to compare the budget deficit to household debt. I would think it was much closer to business debt, who borrow to take advantage of opportunities that allow the business to grow. I think there is probably a middle ground here; cut back on wasteful spending and borrow to take advantages of real growth opportunities.

  • rate this
    +5

    Comment number 485.

    Anyone else noticed the government has started to stop using the phrase "..because of the last government."? Maybe they've reliased people prefer a government that does something rather than blame the last government. Or maybe they reliased the country was doing well in the final days of labour. At least we had stable, if low, growth and falling unemployment.

  • rate this
    +4

    Comment number 484.

    No surprise, surely?

  • rate this
    +2

    Comment number 483.

    - UK said to most likely lose "triple A" notch by rating agencies S and P, Fitch etc. because of weak performance of "duble dip"

    - David said to be extremely nervous over losing "triple A"

    - Germany said to be only country to keep triple A with positive outlook

    - UK said to be "losers of the universe"

  • Comment number 482.

    All this user's posts have been removed.Why?

  • rate this
    +1

    Comment number 481.

    The old saying "Speculate to accumulate" comes to mind in this situation.
    Come on tories, get your finger out and help the country instead of yourselves.

  • rate this
    +12

    Comment number 480.

    I wish these idiots would step outside their ivory towers and spend some time on the street.

    Out here it's permanent recession. We're always skint no matter how hard we work because the fatcats are gorging the cream. And if you're over 60 things are going to get worse.

 

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