16/Apr/2014 - Last News Update: 08:58

UK economy in double-dip recession

Category: Scotland

Published: 25th Apr 2012 11:45:07

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.

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's a very tough economic situation. It's taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime," said Chancellor George Osborne.

"The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt," he said.

He blamed the enormous debts that Britain built up in "the good years" and the fact that much of Europe is in recession or heading into recession.

But Labour's shadow chancellow, Ed Balls, said the government's economic credibility was "in tatters".

"David Cameron and George Osborne complacently boasted their austerity plan had taken our economy out of the danger zone, but their failed policies have plunged us back into recession.

"And far from the eurozone being to blame for Britain's woes, it was only growth in the EU and the rest of the world which kept us from going into recession earlier."

The ONS said output of the production industries decreased by 0.4%, construction decreased by 3% and output of the service sector increased by 0.1%.

It added that a fall in public sector investment had contributed to the particularly large fall in the construction sector.

Some have questioned the validity of the ONS's figures, particularly on the construction industry, which has been 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 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.

Shortly after the ONS data was released, the pound fell half a cent against the dollar to $1.6093, and half a cent against the euro to 1.2184 euros.

"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.

"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.

Joe Grice, ONS: "That aggregate figure is a result of differing experience in varying sectors"

"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 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%.

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.

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BBC News, 2012. UK economy in double-dip recession [Online] (Updated 25th Apr 2012)
Available at: http://www.ukwirednews.com/news/1424468/UK-economy-in-double-dip-recession [Accessed 16th Apr 2014]

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