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UK economy slides back into recession
The UK economy has fallen back into the grip of a technical recession, in a ‘double dip’ that will pile pressure on the deficit-cutting government.
The UK economy has fallen back into the grips of a technical recession, in a ‘double dip’ that will pile pressure on the deficit-cutting coalition government.
A 'preliminary estimate' from the Office for National Statistics (ONS) published today shows a decline in GDP growth of 0.2% for the first quarter after a contraction of 0.3% in the last three months of 2011. Two consecutive quarters of negative growth meet the technical definition of recession.
The economy is weaker relative to its pre-recession peak than at the corresponding stage of the depression in the early 1930s, or recessions in the early 1980s and early 1990s, the ONS noted.
The decline in GDP, driven by weakness in the construction sector, will re-ignite the debate over the Bank of England's plans for its quantitative easing programme, which is designed to boost the economy. The current £325 billion of asset purchases will end in May.
Despite signs of improvement during the first months of 2012, economists had expected bad news from the ONS, with the consensus being for a growth rate of 0.1%, according to a Bloomberg survey. This morning's figure is much worse than that forecast.
The figure means that the UK economy has not grown at all over the past year and has recovered less than half the output lost during the recession in 2008 and 2009.
The services sector, which accounts for three quarters of whole economy output, grew by just 0.1% in the quarter. Industrial production decreased by 0.4%, alongside the sharp contraction in the construction industry.
The economy will be prone to 'zigzag' over the coming months, in Bank of England governor Mervyn King’s words, in the face of difficult and unpredictable global conditions in the eurozone and farther afield.
Today’s GDP reading is the first of three, with revisions possible as more data is made available. Some economists expressed scepticism about the data.
'The danger is that these gloomy data deliver a fatal blow to the fragile revival of consumer and business confidence seen so far this year, harming the recovery and even sending the country back into a real recession,' said Chris Williamson of data company Markit, who reckons the underlying strength of the economy is probably much more robust than today's data suggest.
Howard Archer of IHS Global Insight said he was 'hugely sceptical' about the numbers. 'Survey evidence relating to construction (especially), manufacturing and services activity is markedly better than the hard data,' he said.
Amid a disappointing, but hopefully temporary, halt in the decline in inflation – with CPI measuring 3.5% in March – policymakers’ ability to tackle this slowdown is limited.
The Bank of England's monetary policy committee meets to decide on more policy stimulus on 10 May.
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by Gavin Lumsden on May 22, 2013 at 11:42