UK recession deepens after 0.7% fall in GDP

 

George Osborne: The government has to have "a relentless focus on the economy"

The UK recession has deepened, latest official figures have shown, after the output of the economy fell by 0.7% between April and June.

The contraction was much bigger than expected and follows a 0.3% drop in the first three months of the year.

The Office for National Statistics said the fall was largely due to a sharp slowdown in the construction sector.

It said it was not yet sure of the size of the effect of the poor weather and the extra June bank holiday.

This means that these figures, which are the first estimate for what happened in the economy between April and June, are more uncertain than usual.

"The bottom line from all this is that the underlying performance of the economy was probably somewhat better than the headline figure of -0.7% would suggest, having regard to the extra bank holiday and to the poor weather," said Joe Grice from the ONS.

"How much that effect might be is something we won't be able to say or to quantify until we have further experience against which to judge."

The figures could be revised in the coming months as more information comes in. The first estimate is largely based on information the first two months of the three-month period.

"Nevertheless, the overall picture is of an economy that remains fragile," the ONS said in its latest analysis of the economy.

Prime Minister David Cameron said the figures were disappointing: "They show the extent of the economic difficulties that we're grappling with, not least the situation right across the eurozone where our neighbours are also really struggling.

"Clearly we've got to keep doing everything we can to get out of this difficult situation and provide the growth and jobs that our people and our economy needs."

Chancellor George Osborne said the country faced "big challenges".

"But given what's happening in the world, we need a relentless focus on the economy and recent announcements on infrastructure and lending show that's exactly what we're doing," he said.

Start Quote

If the figures are correct, this would be by some measure the worst four-year period for the UK, outside wartime, in at least 100 years - worse than what happened in the 1920s and 1930s, and worse than anything in the 1970s and 1980s ”

End Quote

In response, shadow chancellor Ed Balls said the "truly shocking" figures showed the government's economic plans had failed.

"If these figures don't make the chancellor wake up and change course, then I don't know what will," he said.

"Thank goodness the Olympics will give our economy a much-needed shot in the arm. But this short-term boost is not enough - we need a plan B now to get the economy moving again and radical reforms to set Britain on a new course for jobs, growth and long-term prosperity."

The ONS did point to some more positive signs for the economy. Employment is growing "modestly", it said, with 181,000 jobs created in the past three months.

With prices rising at a slower rate, the squeeze is also easing on household incomes.

However the output of the economy is still 4.5% lower than it was during its peak before the onset of the financial crisis in 2008.

Construction slump

Analysis

What a muddle. On the face of it economic output has tumbled by much more than expected In the second quarter this year.

But the ONS has admitted there is a lot more uncertainty than usual because of the bad weather and the extra bank holiday.

Output is falling, yet jobs are being created in the economy, as last week's labour market data demonstrated. The business organisation the CBI says it thinks the economy is flat rather than negative.

What's really going on? We can say with certainty that the UK economy is not in a good place. As to what really happened between April and June, we may have to wait another year or more till all the revisions have taken place.

Output in the building sector fell 5.2% in the second quarter compared with the first. It is continuing to feel the effects of the economic slowdown and a sharp drop in public spending on social housing and infrastructure projects.

The ONS said the end of major Olympics projects could also be having an effect.

"This is a disaster for UK growth," said Alan Clarke, economist at Scotiabank.

"It looks like construction has done a lot of the damage," he said. "On average for the year, it's looking very unlikely that we'll be on the right side of zero growth. More likely we'll be contracting."

Production industries, which include manufacturing, decreased by 1.3%, due in part to weak demand from the eurozone, one of the UK's biggest trading partners.

The fall in services output by 0.1% surprised some, including RBS economist Ross Walker, who said he had expected the retail sector to grow during the quarter.

"We thought even with the drag from the Jubilee that we would probably just about squeeze some growth out of that sector, [but] it's contracted."

However, John Longworth, director general of the British Chambers of Commerce, said many firms were faring better than the statistics suggested.

"We're not completely convinced about the accuracy of the figures," he said. "Our business surveys and other business surveys and also the employment figures all belie what the ONS are saying about GDP and it wouldn't be the first time in history that two successive quarters have been revised upwards from negative to positive."

But he added: "Nonetheless, there's no question that the economy is, at best, stagnating."

An economy is considered to be in recession when its output has declined for two consecutive three-month periods.

The UK economy is in a double-dip recession as after a period of recession, it briefly starting growing again before a second bout of falls.

Earlier this month, the International Monetary Fund said that the UK faced "significant challenges" from a stalling recovery, high unemployment and threats from the eurozone.

 

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  • rate this
    +8

    Comment number 273.

    #225
    Now there's an idea, but don't expect it to happen, sadly to many of those elected to represent the electorate are only in it for what they can get out of it.

    My MP has never been critical of his leaders, yet I live in an area where 20% of households already live beneath the poverty line and it's anticipated this will grow!

    We are not all in it tighter, they are in it for themselves!

  • rate this
    +4

    Comment number 272.

    Judging by the packed out Croydon High Street today at lunch, you look at it in two ways.

    1. The economy is great and people are out enjoying the sun and spending.

    2. The economy is awful and people on benefits are out enjoying the sun and not spending.

    A quick, very objective analysis of the type of people walking around...my guess is 2.

  • rate this
    +8

    Comment number 271.

    Economics 101

    Investment in production generates income & profit x times. The more Investment the longer the time the higher the income stream (growth/inflation, the quicker the repayment) as one of the 99% I need to borrow.

    No Investment means no income no employment. Government needs to invest in infrastructure.

    Without demand business sits on its cash

    We need income inflation NOW

  • rate this
    +1

    Comment number 270.

    We own a small, but (currently) expanding construction business. Thankfully we did not build our business on the strength of public sector contracts, those that did have paid the price. While I agree that reducing the debt is important, getting Britain building again would go a long way to helping the economy

  • rate this
    +5

    Comment number 269.

    As mentioned in countless previous posts. What part on 'no disposable income' do Cameron and his henchmen not understand? The evidence shows that throwing money at banks is like trying to bail the Titanic out with a thimble. Even a drunken senile chimp can see these economic policies are aimed at the wrong people. If this mis-management of the economy continues then, expect worse. Resign!

  • rate this
    +5

    Comment number 268.

    The torries need a good spin doctor to get them out of this one. Coulson - Coulson?
    Where's Coulson when you need him. OOoopps

  • rate this
    +8

    Comment number 267.

    Wonder how many of those business "leaders" who wrote to the papers saying austerity was the only answer will make of this ? Not a lot - they still get their mega bonuses despite chairing failing companies. Its the rest of us that suffer thanks to Tory addiction to failed neo liberal economics.

  • rate this
    -13

    Comment number 266.

    Rain was a factor, as was the extended holiday some took early over the Jubilee weekend; also after-effects of a nasty flu season that this year was rather longer than usual, leaving many of us behind schedule & rushing about catching up. Quarterly data can be a bit misleading, not capturing accurately the mood & activity of a period. Some segments did fabulously, e.g. art auctions, restaurants.

  • rate this
    +6

    Comment number 265.

    I was in favour of the cuts, because we were spending far too much and getting more and more into debt every year. But its now clear they were applied much too quickly and too much was cut. It's time to put a little back into the economy to try and get things moving again.

  • rate this
    +11

    Comment number 264.

    Like the naughty school child who is told "wait till I get you home" once the Oylmpics are over and the world isnt watching anymore Cameron and co are going to go all out and screw us even harder than before.

  • rate this
    +131

    Comment number 263.

    I work for a large construction company, employing over 11,000 people, and we are being blamed/focussed on for causing this further downturn. If this Government released money for Infrastructure projects (we build roads, schools, runways, tunnels) we would be recruiting thousands of employees, apprentices, graduates intead of shedding hundreds of staff every month. Idiots in charge have no clue!

  • rate this
    +3

    Comment number 262.

    Is it just me or is the response to this sort of news always to tell you how hard they will need to work and how hard they will work. From today's announcement it would seem that makes things worse, not better.

  • rate this
    +6

    Comment number 261.

    203.
    Clive Hamilton


    "Building growth on "borrowed money" would be like building a house on sand with no foundations - madness."

    --
    Madness or Keynesian economics? Reverting to the macroeconomic policies of Keynes is the best hope for a global recovery.

  • rate this
    +7

    Comment number 260.

    @2.shellscript

    This ain't recession, this is a full blown economical depression.

    You obviously haven't been to Greece, Spain, Ireland or Portugal. By comparison we are in a recession.

    What bugs me is that the Olympics is providing jobs, albeit short-term, yet this country is incapable of matching these jobs with 18-25 yr old age group because they lack inexperience. What a load of...

  • rate this
    -5

    Comment number 259.

    238. Dr_Ads - Oh here we go lets blame it on the Immigrants or employing foreign labour. Britain is a multicultural society now some of you need to get your heads out of the sand and look around. Even though it sticks in my craw to say it, Cameron is correct like it or not we are all in this together. As for Balls he needs to realise we tried borrow and spend and look what happened.

  • rate this
    +2

    Comment number 258.

    We thought it was turning around in 2010 - until the EU fiasco deepened. As the EU crisis continues (as does all the other economic crisis news) we are no longer in a recession, we are in a DEPRESSION - when are we going to start calling like it is and then demand the Government to start investing?

  • rate this
    -55

    Comment number 257.

    They sorted out the economic mess in the 80's and they'll sort it out again now. Unfortunately when you have a £1tr debt and annual spending of £140bn above your income, it's never going to be pretty or a quick process. However cutting waste and reorganising the shambolic mess in the public sector will get things turned around and leave a much better economy in about 4-6 years time...

  • rate this
    -3

    Comment number 256.

    Good i hope so ...

  • rate this
    0

    Comment number 255.

    We have seen a complete drop away of orders since March of this year. Jobs we have been talking about to be manufactured in May/June have just not happened, even though we know the end user is waiting for the equipment. Another job is need up in Scotland, lots of activity, quotes etc etc but all of a sudden - nothing.

    That's £80k's worth of work for us, 3 months work for us approx.

  • rate this
    +8

    Comment number 254.

    Well George, congratulations! - all the money in taxes goes to your banker freinds, proping up their bonuses and probably securing a future for you and your budies in banking when your thrown out of politics. Still, at least all the criminals will be in one place. Won't Camerons "Tax Haven" millions help the economy, or is it only the poor tax payer that has to foot the bill for your imcompetance?

 

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