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
    -1

    Comment number 559.

    Why doesn't the government legislate to create performance based taxation for massive business owners? Like those who want to get away with a near 0 tax level CAN on the basis that they create a certain number of jobs in key areas, for BRITISH nationals? Target specific sectors each quarter, place them under the scheme, and create a pay based tax rate for the multibillionaires?

  • rate this
    +3

    Comment number 558.

    It is obvious this would be the outcome of the pantomime horse governments simplistic economic and fiscal policy. It can be likened to turning off the tap and hope that the bath will somehow manage to fill itself. I thought that these people had at least an iota of intelligence. It certainly appears not yet they meddle in our national economics. Come back J M Keynes we really do need you now.

  • rate this
    0

    Comment number 557.

    this is what happens when a goverenment doesnt know what its doing. unfortynatly no one else does either so well just have to suffer.

  • rate this
    +32

    Comment number 556.

    I started a small business in 2007, I'd like to hire people to help out but the running cost and competing with over seas production I cannot see how it will grow. The current trend is to have fewer staff and outsource may have worked short term for a few people, the people looking for work and extra money are missing out. get production back to the uk. while it may not be the answer it would help

  • rate this
    +2

    Comment number 555.

    Well I'm not in recession.

    Sorry Dave, George. Not my problem.

    I've paid enough in tax funding the last recession. They're not getting any more.

  • rate this
    -1

    Comment number 554.

    The days of unrestrained lending and spending have gone forever.
    The recession therefore may in fact turn out to be a permanent or long standing economic correction.
    The problem with this is that the Govt have a few bob to pay back and are praying for growth.
    They may have to correct their payback plans soon if, as predicted the growth doesn't happen.

  • rate this
    +6

    Comment number 553.

    I for one am not shocked by this news. I, and every other hard working person at grass roots level could have told the suits that we were in recession 5 months ago. I could have also told them not to give our hard earned tax money to the banks as there is no chance that they are going to do anything to increase lending or stimulate the economy. Why do we let these imbeciles look after things?

  • Comment number 552.

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

  • rate this
    -2

    Comment number 551.

    We only delayed it in 2008. We are skint and in debt and not even a Conservative (ish) government has had the balls to say that the cheque book is closed. Private health, workfare, 1 year limit on able bodied people getting any benefits, corporation tax halved, 75% cuts in public spending not 20%. We do not need 71% of the North East of England in public jobs.

  • rate this
    +2

    Comment number 550.

    This is going to be a deadly blow to already suffering consumer psychology. God help Britain.

  • rate this
    -1

    Comment number 549.

    I think at some point soon we will realise the big drains on the UK finances (NHS, Trident and over-generous welfare payments) will have to be stopped. We do not need them, and in the case of welfare few deserve them. What we do need is a much smaller State and far less regulation. By the way, if we have to keep one of the drains, Trident gets my vote.

  • Comment number 548.

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

  • rate this
    -87

    Comment number 547.

    Olympics and diamond jubille are like light in a dark-tunnel economy.
    Wait until tourists land and kick-start the retail economy.

  • rate this
    -5

    Comment number 546.

    The problem is that all gov't have been using debt to create a false economic boom. We how have so much debt that the cost of servicing it means just borrowing more money doesn't work. If this country is to have any future we need to cut/payoff our debt ( not just the deficit which means we are still creating debt). To do that we need to reform the pub/sec to stop it spending us into ruin!

  • rate this
    +5

    Comment number 545.

    This is not really news, economists were saying last year we were back in recession but my own views is that we were never out of it since the banking colapse of 2008, which is what all this is about. The government tried to get us spending again by "Bigging it up" but it didn't work ... and to think Cameron and co slagged off Labour for doing it before them.

  • rate this
    +1

    Comment number 544.

    This panic petrol buying conspiracy. Seriously? Do those of you espousing this actually believe it? If so god help our country and our economy!

  • rate this
    0

    Comment number 543.

    I wound not start a business here poor home market,poor export market

  • rate this
    0

    Comment number 542.

    516. Pandora

    How long before we fight over a loaf of a bread in a shop? is this too distant - a state of economy seen in Great Depression and WW1 and WW2 days.

    --

    Don't panic Mr Mainwairing!

    With voters like this it is nor wonder the UK ends up with the government it deserves.

  • rate this
    -1

    Comment number 541.

    Mr. Osborne your cut will not grow, unless if you cut hair in the barber and tomorrow will grow about 0.02mm. lol

  • rate this
    0

    Comment number 540.

    Greece proves austerity doesnt work France is about to go far right because the people there know it wont work and we the ordinary public can see its not getting us anywhere except even more borrowing and the biggest ever debts although you wouldnt think so when we can give Japan 80 million to plant trees and chuck another 10 billion at the lost cause of the IMF and Europe
    Sack This Government Now

 

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