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 719.

    #689
    689. johford97

    Im really confused. Im not a political person but how can Labour say that the current government dont get it. Labour have done what they have always done, they have spent beyond their means
    ---
    Depends by what you mean as means - prior to detonation of the pin striped con bomb, spending as % gdp was not particularly high
    Worth digging beneath the headlines if you get a chance

  • rate this
    -7

    Comment number 718.

    Lets look at the numbers

    Annual Deficit £90bn
    Defence Budget £37bn
    Interest on debt £44bn
    Welfare Budget £240bn

    So there you have it. Labours legacy and why we will never grow until the benefits system is brought under control

  • rate this
    +1

    Comment number 717.

    for me, the price of petrol is sucking away any spare cash i might have. Not the price of oil, but the price of petrol, which is mainly tax.

  • rate this
    +10

    Comment number 716.

    "547.Pandora
    Olympics and diamond jubille are like light in a dark-tunnel economy.
    Wait until tourists land and kick-start the retail economy."
    ---
    FACT: Hotel bookings are down 25% and 50% for the jubilee and Olympics periods respectively. So basically you're wrong..

  • rate this
    -1

    Comment number 715.

    GDP growth is not necessarily positive. There is organic GDP growth (good) and debt-fueled Labour-type growth (bad).

  • rate this
    0

    Comment number 714.

    690.Mayna
    "Perhaps because other posters will quote you Thatcher as the cause of all evils."
    ////
    That's what I suspected - childish finger pointing. Some people should stick to watching football, they're out of their depth where politics are concerned. I don't care about the past, I just want answers from this government. Now.

  • rate this
    +5

    Comment number 713.

    " The_Stewey
    If we reformed the EU back to a trading treaty we could remove many economic immigrants and free up jobs for British workers"

    great idea. What would you do with the 2 million or so Brits that live, work, or are retired in EU countries that would then need jobs, housing, healthcare, benefits etc?

  • rate this
    0

    Comment number 712.

    700. I guess your solution would be to print a load more money, pay it to public sector workers, who never create wealth for the country, and leave the credit card bill for our children and children's children. That is assumimg the credit card isn,t withdrawn for irresponsible use and then mass starvation comes.

  • rate this
    -1

    Comment number 711.

    Thc country is in a mess. music to our sick-minded media's ears. We are in the worst economic crisis imginable and what do they concern themselves with. Trying to get a minister sacked - with no proof whatsoever as yet that he has actually do anything wrong. Get Labour back in, let the exodus of the talented/wealthy commence and the idle/feckless/ambitionless have the country they deserve.

  • rate this
    +3

    Comment number 710.

    @691
    How easily one forgets that VAT was 15% before the government decided to put it up twice and now they talk about a temporary drop to 17.5%.
    that's like a Tesco price drop on a jar of coffee and then putting 190 grams in instead of 200 thus a hidden price rise called a price drop.

    you cannot tax your way out of this situation especially with VAT because that affects the home market

  • rate this
    +7

    Comment number 709.

    "If it didn't work with a 30% cut in the public sector why would a further 20% work. The private sector hasn't replaced the jobs lost in the public sector."

    Not to mention the FACT that the public sector is the primary market for a massive amount of the private sector's output and services.

  • rate this
    +4

    Comment number 708.

    Not a politician myself, but a finance professional with insolvency training, have been tempted to create my own political party "The Fair Play Party" to promote fairness, morals, values of hard work and discipline and good old fashioned common sense.

    That is what this country is devoid of, and let us make Britain great again.

    Anyone care to join me?

  • rate this
    +12

    Comment number 707.

    156.U14758196
    The recession isn't affecting me and most of the people I know - I've even just managed to change jobs and get a 40% payrise...
    Pay no attention to hype - if this recession isn't affecting you then no point worrying about it

    Bully for you. Talk about I'm alright Jack, never mind enybody else.

  • rate this
    +6

    Comment number 706.

    This jargon is meaningless as the global economic system is purposefully managed to create a situation in which honest hardworking people essentially pay for the lifestyles of the super rich and powerful.Financial anxiety is a part of the psychology of mass control, along with many other tools, and it will always be so until we all stand up and go....hang on a minute, we're being diddled here!!!

  • rate this
    +14

    Comment number 705.

    "cholmes2
    The problem is we've had a deficit for 44 of the last 50 years"

    But Labour have been in power only 25 of those 50 years. So it must be true that Tory governments run deficits most of the time too?

  • rate this
    +2

    Comment number 704.

    Although I would like to see the back of VAT, cutting it will only increase demand for foreign goods made cheaply. By all means cut it but make it VAT 0 for all goods manufactured in the UK. 8.5% for European goods and 15% for the rest of the world.

  • rate this
    +1

    Comment number 703.

    I think we have too many schools, police and hospitals

    what we need is more factories and bring back the mills so kids have something to do during the day

  • rate this
    +2

    Comment number 702.

    If we reformed the EU back to a trading treaty we could remove many economic immigrants and free up jobs for British workers, which would cause the amount of benefits claimed to fall dramatically meaning the govt could spend a little bit of money on growth strategies, and reduce the taxes on businesses ie employers NI contributions, making it cheaper to employ people.

  • rate this
    -3

    Comment number 701.

    675Mo Strummer
    This whole blaming the previous government is wearing a bit thin

    It is but a £1 trillion debt and an annual budget deficit of £150bn is hard to ignore and quite a sh*tty starting point when you're a new government trying to reignite economic growth

    It's like Usain Bolt being asked to break the 100m world record whilst carrying the other 7 competitors on his shoulders!

  • Comment number 700.

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

 

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