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 879.

    @868
    "In 2007, under Labour, and prior to the economic crash/fraud, the UK unemployment figures were the lowest they had been in 22 years." Why?
    Because the extra employees were ALL public sector workers whose wages were being paid by the billions in taxes received from financial services & from increased borrowing.
    Labour REDUCED the number of private sector jobs.

  • rate this
    +3

    Comment number 878.

    Now seems to be the time to ask the IMF to give back our £10 billion that George 'lent' them the other day.....

  • rate this
    +2

    Comment number 877.

    Consumer spending 1% less than recession lows of 2010 and 5% less than pre-recession 2008;
    2012 average savings to income are 5% higher than 2008 for fear of job losses;
    Unemployment fell 35,000 to 2.65m BUT claimant count rose 3,600 in March to 1.61m; which is important because less people in full-time work, more in part-time work which they are overqualified for and edging others into welfare.

  • rate this
    +3

    Comment number 876.

    858. sprout_2001

    Also is there any example in history where austerity has produced growth?

    --

    Probably not in the same way there probably aren't any examples in history where borrowing money has reduced debt.

    But then maybe both sides of the argument are probably being too one dimensional in their thinking of how to solve our economic problems.

  • rate this
    +4

    Comment number 875.

    TRUTH! This shows nominal GDP. In terms of real GDP which takes into account inflation our economy has been in significant recession since 2008. And there will be no change until poor old King George - the chancellor with no clothes - starts to get a grip. Spend for growth, not wait for an export led recovery cos you are peeing in the wind!!!!!

  • rate this
    +5

    Comment number 874.

    @805.@cholmes2
    Germany is booming because it exports.

    latest Markit PMI for Germany
    "Sector data showed a near-stagnation of new work in the service economy, while manufacturing firms saw a sharp deterioration in their new order books"

    Most the data suggests the German economy is heading for big trouble, its just taking longer because of its size & wealth.

  • rate this
    -5

    Comment number 873.

    842.John_L101
    "Austerity isn't working. The French are rejecting, The Dutch are rejecting it..."

    ..except rejecting austerity costs money, and the prime suspects neither have any, nor can borrow any at affordable rates.

  • rate this
    -1

    Comment number 872.

    860. I remember the 70s (and the 60s). That was the era when the now whinging pensioners started to buy lots of imported stuff, go on holidays abroad and demand, and got, high wages. I also remember that most of the stuff we needed could be sourced from locally made stuff. Not now. So stop whining and buy less, buy local.

  • rate this
    -1

    Comment number 871.

    854.Rodders

    No actually I have Tenant now in the Farm.. He is very happy to supply me with good wholesome fair at a discounted price, due to the fact of the very generous EU subsidy he is in receipt off.

  • rate this
    -5

    Comment number 870.

    2 Ed's R clueless. Prev. Labour Gov.has alot 2 answer 4 (racking up borrowing when they went on spending splurge, leaving nothing in kitty when we fell on hard times). Debt pile must be repaid. Do we want 2 end up with credit downgrade/inability to borrow money @ reasonable yields/being held 2 ransom by the markets, ALA Greece/Spain?! Who knows where we would be if we had these clowns in charge!

  • rate this
    +1

    Comment number 869.

    UK can not stand on its foot...It should get the help from great powers China and India. Otherwise the situation will be worst in uk .Economy is going down.

  • rate this
    +8

    Comment number 868.

    @843 FreedomBell

    In 2007, under Labour, and prior to the economic crash/fraud, the UK unemployment figures were the lowest they had been in 22 years.

    Care to explain that way?

  • rate this
    0

    Comment number 867.

    Our economy sorted in 5 years

    Job type tax system

    20% for those on commission only up to £50,000, 50% for all other earning’s

    30% basic rate of tax for all other’s so the Government gets its taxes

    10% vat so we can still afford the basics and save for a new 3D TV

    9% plus paid on top of wages into a pension by employer's

    Reductions for self employed

    15% fuel tax reduction

  • rate this
    +2

    Comment number 866.

    Both govts to blame here: Labour for encouraging debt-funded consumerism by leading by example and the Coalition for having a plan for austerity but no plan for growth.
    Maybe the Jubilee + Olympics will give a short term spur. But govt needs to encourage long term growth, either through tax cuts (NOT for the rich) or more investment.
    Outlook will certainly improve. The question is when.

  • rate this
    +5

    Comment number 865.

    & this is NEWS?

    Anyone living / coping in the real world KNOWS we have been in recession since 2008!...or in other words WE HAVE BEEN IN DEPRESSION!

    The only thing hiding this FACT is the that the Bank of England have been bailing out the banks by (in effect) printing money!.....(hence high inflation) That will have to stop!

    Meanwhile the banks get BIGGER and INCREASE there holding of DEBT!

  • rate this
    +9

    Comment number 864.

    Just think how wonderful things would be if we had the Euro and were not lead by the stellar management of Whitehall :-) Buy British? Got to make stuff first and stuff people want, like Germany does

  • rate this
    -7

    Comment number 863.

    Dreadful news, but is this caused by the Government trying to stop the excessive spending built up under the incompetent Labour period in Office? No the coalition have inherited a nightmare and it is pathetic to hear the squirming Eds, Miliband and Balls seeking to deny their role by blaming the Government. Recession is the consequence of allowing Labour to hold power for 13 years.

  • rate this
    0

    Comment number 862.

    849.Some Lingering Fog
    1 Minute Ago
    825. lifeslittlechallengesI

    You can afford Christmas trees and takeaways. How rich are you?

    lol - I left home in 1986 and had a second hand tree given to me. It was replaced 2011. I am well careful with the sponders.

    Feel better? lol

  • rate this
    +4

    Comment number 861.

    When your economy depends on sales of food and shoes you know that you are in big big trouble.

  • rate this
    +2

    Comment number 860.

    UK has had a structural problem since the 1970s. Various governments have tried both ends of the pitch, none have succeeded. Brown's gamble was with Big Govt. - didn't work. Osbourne's gamble is with little govt. - looks like it's not working. Milliband's comments are - puerile. This isn't about G(g)ovt. It's about industry. Quit the political grandstanding and give industry every break in sight.

 

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