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 ”

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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
    +14

    Comment number 653.

    Mr Osborne is quoted as saying that the government needs to maintain "a relentless focus on the economy". Even allowing for a more favourable revision of the figure of 0.7% for the fall in economic output, I wonder if this relentless focus is such a good idea. Given the Chancellor's performance to date, we might all be better off if he just hid behind the sofa.

  • rate this
    -7

    Comment number 652.

    Love the BBC. When its bad news on the economy, it remains headline news ALL day. But when there is good news(increase in retail sales, manufacturing etc) its swiftly relegated to the lower pages.

    The world is a different place then it was 50 years ago and we need Europe to play its part and sort themselves out.

  • rate this
    0

    Comment number 651.

    Hard to treat the BBC as unbiased when there is so much resentment there towards the government (in general) over their pension deficit.

    We shouldn't be in recession... what with there being so many economic experts in the country...

    Two years and two months to solve this mess.... get real people.

  • rate this
    +15

    Comment number 650.

    Dont be fooled by "Unemployment is falling", this is simply being manipulated by putting youngsters on £2.60 an hour apprenticeships. The lack of decent jobs is worrying. No jobs = No income tax contributions.

  • rate this
    +14

    Comment number 649.

    Who & what have the coalition blamed so far? Weather, Jubilee, Royal wedding, Euro Zone, Unions, disabled, unemployed. Sadly they've chosen to overlook the real problem with our economy; their total lack of a clear plan for growth, their incompetence, their inexperience in government, their arrogance. In short they are prolonging this mess but are in denial. But of course it's all Labours fault!

  • rate this
    -4

    Comment number 648.

    I am not a big fan of George Osbourne, but it makes me sick when I hear Ed Balls, one of the architects of the current economic mess, giving out advice for us to get into even more debt!

  • rate this
    0

    Comment number 647.

    300Napoleon
    Look at the graph, GDP was growing at the last election. There are more brains in Brown and Darling's little fingers than in the whole of the current amateur cabinet

    Any fool can achieve growth by running up enormous debts. These debts have to be repaid which the Govt is doing whilst striving to achieve real growth not growth built on debt! Big difference that Labour don't understand

  • rate this
    -6

    Comment number 646.

    You can blame George and the Tories all you like, but unfortunately Tories are NOT in power.

    We have a coalition made up of a pathetic LD party and run by a very liberal PM.

    What we need is a very strong, probably right wing, leader to come in and clear up the mess at the top and bottom of society.

    - Tax the bankers & tax dodgers
    - Get rid of illegal immigrants
    - Get rid of benefit culture

  • rate this
    +5

    Comment number 645.

    627.SteveB

    If the rich paid there "fair" share of tax instead of having it "offshore" there wouldn`t be such a black hole.

    All this is Thatchers legacy with her program of deregulation and massive tax cuts for the rich.
    Just imagine a 20% tax cut.

    ELECTION NOW

  • rate this
    +1

    Comment number 644.

    To those who oppose austerity - Spain's failure to control borrowing means they are paying 7.5% on their loans. On a 1 trillion debt, you need to pay 75 billion a year just to break even.

    On the other hand, if you don't pay the debt, then it doubles every 9.6 years! And if you try to inflate your way out of it, the interest rate goes up even more.

    Exponential debt is the curse of the imprudent

  • rate this
    -50

    Comment number 643.

    If everything is so gloomy and downbeat then something is amiss. The figures do not seem to reflect what seems to be happening in the economy. Reducing numbers out of work, a continued weak but steady housing market and a fairly good outlook from most companies. I believe these figures have been skewed by the bad weather and the waste of time which was the jubilee. Too many days lost!!!

  • rate this
    -3

    Comment number 642.

    The Labour Party got us into this with spend,spend,spend, with no little help from the unions, AND they haven't got a clue how to get us out of it. Sound bites by the Millipeed and Loadsaballs won't be much help either. So much negativity by the BBC and getting that idiot doom monger economist from the University of New Hampshire will not help either. He should be ashamed to be called English

  • rate this
    -10

    Comment number 641.

    Where are all these cuts we are promised & need then ? This country need to shead vast amounts of Public Sector waste. It has to put money back into the working peoples pockets. We have to dismantle this black hole that the Socalists created. There has to be a Tax Payers revolution.
    Just refuse to pay get them up off thier back-sides..

  • rate this
    +3

    Comment number 640.

    "Blaming the dip on the construction industry is a hilarious joke, how about pointing the finger at those actually responsible."

    Sorry, no one is blaming the whole recession on the construction industry, but to try and claim that it isn't the biggest contributor to the lower growth figures is like trying to deny that water is wet.

  • rate this
    +3

    Comment number 639.

    It is a combination of things. We have a broken banking system. We have a massive deficit problem that we are slowly but surely working our way through. We have a very difficult external environment in our main export market, which is the EU

  • rate this
    +1

    Comment number 638.

    590.TheTakeleySocialist

    I've never owned a house, but i have a hefty deposit saved waiting for the prices to drop (or even better crash).

    Then young people like me can get on the ladder, i might employ a builder to do some work on it and then use some of my monthly savings (from a chepaer mortgage) to buy some stuff.

    People need to do some joined up thinking

  • rate this
    +9

    Comment number 637.

    "605.nicknack1
    Houses shoould be at least 20-30% cheaper than they are, and almost everyone benefits except ppl in neg equity and banks."

    Have to agree there. If somehow magically housing was 50% less, with less rent (the benefits budget slashed as a result), we'd be rolling in it now. It should be an economic goal to get housing to affordable levels.

  • rate this
    +6

    Comment number 636.

    Any one notice earlier in the week the deliberate but feeble attempt by a Treasury minister to deflect the bad news before it was published?
    He was saying how immoral it was to pay cash to plumbers etc?
    We have had snow in winter, ash from Iceland, flooding, Labours fault, the EU, Royal Wedding, the construction industry,Labour again, but never ever, the Tory government! Strange that!

  • rate this
    +4

    Comment number 635.

    The economy will not recover from this 'recession'. The fact of the matter is, the governments and the banks are in each others pockets. They print money, causing massive inflation and keeping things exactly as they are. The rich rich and the poor poor.

    Blaming the dip on the construction industry is a hilarious joke, how about pointing the finger at those actually responsible.

  • rate this
    +8

    Comment number 634.

    620. G Thirde
    "Yes the Omnishambles budget was not good but Osbourne has mantained our credit worthyness which would have been lost had Labour regained power. "
    Not so, the Darling plan was to half the deficit in 5 years, to reduce the risk of plunging the economy into recession.
    Osborne talked himself into a corner with his plan, he gambled on the private sector growing jobs, it hasn't.

 

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