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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.

 
UK economy slides back into recession

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.

23 comments so far. Why not have your say?

Anonymous 1 needed this 'off the record'

Apr 25, 2012 at 12:06

No surprises here.... except there has been no growth in the UK since 2006..... except possibly in destitute families, single mums, unemployable workers, illegal immigrants, human rights, minimum wages and the deficit.... neither Blair or Brown had a clue (could'nt add) and the lot in power now trying to sort out a mess that is not much better than Euroland.... and the weather is miserable.....

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William Bishop

Apr 25, 2012 at 12:06

Far too much fuss is made of minor quarterly variations in GDP on what is essentially a flat-lining economy,

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alex dekker

Apr 25, 2012 at 12:21

What's the margin of error on this? I'm always suspicious of big noises made about tiny percentages.

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J Thomas

Apr 25, 2012 at 12:27

One point the government has forgotten to mention.

We had the benefit of Feb 29th this being a leap year.

When the extra day is factored into the equation the decline is more like 0.35%.

Just thought I'd point it out as no one from the ONS has.

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Jonathan

Apr 25, 2012 at 12:44

No doubt Mervyn King will say "It would have been a lot worse if the BOE had not performed QE". But then he would, even though he doesn't really know as it's impossible to carry on two different experiments at the same time.

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Clive B

Apr 25, 2012 at 12:47

I agree with William Bishop on this one.

Technical measures of recession - two quarters of negative growth (of ANY size) - is meaningless. Doesn't differentiate between the two quarters being minus 0.3% and minus 0.2% (as now) or minus 30% and minus 20% (eek !).

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Jon

Apr 25, 2012 at 16:03

The GDP is a measure of spending less net imports, adjusted by inflation. So with more people reducing their debts, and significant inflation this is no surprise. In the Labour years the GDP was boosted by everyone spending other people's money - no real increase in PROSPERITY. So with the weaker pound, provided we can close the balance of payments deficit who cares a toss about the GDP. We may well become more prosperous as a Nation whilst the GDP is falling.

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clarkkent

Apr 25, 2012 at 16:28

Well said Jon, although I suspect that some analyst would shoot your statement down in flames.

However, I think you have it in a nutshell, reduce personal debt, learn to live within one's means, drive more frugally, drastically reduce the welfare bill, get rid of the legion of "jobs for the boys" managers and things will start to get better. Oh, and make this country almost impossible to get into and very easy to get deported from.

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Jonathan

Apr 25, 2012 at 16:42

Jon,

So if the BOE can print loads of money though QE and not cause monetary inflation then GDP will go up. Then the BOE had better somehow hide, disguise or just not admit that printing £325 billion for QE causes inflation.

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David Harvey

Apr 25, 2012 at 17:11

Is the cure becoming a bigger problem than the disease?

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James B. Johnson

Apr 25, 2012 at 17:23

You can't increase growth if fewer people are working and you can't lower the deficit if fewer people are paying tax.

I'm sure all readers of this blog can grasp that.

WHY CAN'T THE GOVERNMENT??

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Jonathan

Apr 25, 2012 at 17:35

James B.

Equally you can't create growth by creating non-jobs. You might just as well give people more dole money it would have equal effect creating non-jobs. What's really needed is creation of jobs where people create stuff that can be sold.

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David Harvey

Apr 25, 2012 at 17:46

It's not just the tax James, It's millions working part time and needing help to live, and all the dole money. Add to them the growing millions without a tiny bit of surplus income, not perhaps on benefits but living hand to mouth. I have always believed that the austerity measures are self defeating and short sighted.

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James B. Johnson

Apr 25, 2012 at 19:07

David

I could not agree more.

There are many interventionist measures which we should be taking but they would be alien to Cameron's 'philosophy'.

No one wants non-jobs but bringing forward vital infrastructure projects would create real jobs, and youth unemployment could be eased by mandatory apprenticeships and 'traineeships'. Let us say that companies employing more than 1,000 workers could be required to take on one apprentice for each 100 employees above that figure with a job at the end of it.

Not too onerous I would have thought and no apprenticeship could be described as a non-job.

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Jon

Apr 25, 2012 at 19:38

James B - as has been pointed out, the government can NOT create jobs to solve the problem, and the Government understands this (the previous one did not). The cost of the jobs exceeds the tax collected as the job holders drive up imports, have foreign holidays and send cash abroad, which is a net loss to the UK. So your suggestion will INCREASE the deficit as it is following the very path which caused the deficit.

We could increase taxes, but to have any effect this would not be just on the "rich". In fact taxes have been increased on savings and pensions through artificially keeping interest rates down (QE) which lowers the goverrnment's borrowing costs (not to mention Brown's tax on pensions and the transfer of cash from bank sharholders to the Treasury as the overall effect of the banking crisis) But increasing taxes would stunt growth.

.The fact is that over the past 20 years the UK has been going down the plughole as our trade deficit has grown. But instead of sterling falling as it should (and thus reducing our living standards) or people taking pay cuts in general people have spent more each year (GDP rising). Now we need a correction to put us down where we should be so that we do not have a trade deficit and we can grow our way up based on paying our way in the World.

An easy way for the government to cut the deficit would be massive reductions in government spend. As labour is by far far the biggest cost this would mean reducing all public employees' pay and pensions as in Ireland and Greece. Current spending reductions are not enough given that GDP will not grow, especially with inflation working against it. And the reductions in spending power of individuals would also cut imports.

So to pay for our excesses as a Nation over the past 20 years it will be painful. Inflation is affecting us all. Savers and those with private pensions are taking an additional heavy load. And those who lose their jobs also take a big cut. And still it is not enough. So perhaps we could relieve these effects by ALL taking a pay cut and those with final salary pension, a cut as well (DB pensions have already taken a big hit) That way we would all share the load, avoid a falling pound, inflation and erosion of savings. In other words we all carry the can NOW and stop destroying deferred assets

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David Harvey

Apr 25, 2012 at 19:51

At present it only seems to be truly painful to the more vulnerable of us.

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engineertony

Apr 25, 2012 at 22:18

GDP cannot grow if nothing changes, and nothing is changing.

The damage has been done over a period of 60 years since Clement Atlee announced that the National Research Development Council would exploit the opportunities created by the technology of the war years. We all watched as the opportunities came and went.

It continued with the National Enterprise Board in 1975 urging enterprise but stiffling it with taxes and red tape. We all watched, particularly engineers who saw amazing opportunities in computer control and robotics, but the chances came and went. No experience engineers or successful businessmen at the top, just the same old schoolboys trying to hang onto the family fortunes.

Now we call it the Technology Startegy Board, weaker and less effective than any of the the others, and with Britain 30 years behind in technology, and half our industry sold off to foreign firms, they are still playing the same tune. We can all watch and hope.

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David Harvey

Apr 26, 2012 at 07:56

Since Thatchers lame duck policies and yops people we have been knocked back even further. The industrial base we had was thrown out like the baby with the bath water.

The 4 million unemployed that she helped create, much us Cameron is doing, lost their trade, their pride and morale.

The yuppies era began and making money from money became the in thing.

She like Cameron used the people of this country as ballast in our fiscal hot air ballon.

We are so fond of hammering Brown we forget what went before him. Today we see a different world and we can't cure our ills by making money from money.

Well said engineertony

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Jem Cooper

Apr 26, 2012 at 08:55

So those making expensive low quality goods and those bankers and lawyers providing casino services are now 'producing' less. If GDP were a true measure of the real value of the stuff we produce and services we provide we should worry when it declines. But hopefully the recession is weeding out the hangers on, the inefficient and the time wasters allowing us all to put our effort and our earnings to more valuable use.

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aba bouskouchi

Apr 26, 2012 at 14:03

I suppose the Conservative will get another 5 years after the next General Election.

Can somebody help me to make sense out of politics please!

The British are very intelligent race and yet we are conned every time there is an Election.

Some smart new boy that is extra educated, tells us he is a good husband, he is a good son, very grateful for being educated at the top school of conmen, he is going to do this and he is going to that, suddenly we are convinced and vote for his party. He/she gets in and it takes them the full 4-5 years convincing us that he/she is still trying to clean the mess that the previous government left behind. I fell for it twice, Mrs T and Mr Blr. This time I think I'll go green. At least they are looking after our beautiful countryside.

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James B. Johnson

Apr 26, 2012 at 14:28

David Harvey is right about Thatcher and Jon is utterly wrong about growth and the effects of stimulating growth.

We are in a downward spiral just as we were in the eighties. This decline will continue until we get out of the austerity mindset and start embracing well proven measures to stimulate growth. As I said, bringing forward capital projects such as renewing infrastructure, building schools, hospitals and homes will create employment.This in turn will create spending power, which in turn will create further employment which will create tax revenue and thus begin an upward spiral of prosperity. Most sensible economists recognise this.

Those who don't are simply mired in Thatcheron dogma.

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Jon

Apr 29, 2012 at 21:38

James B – there must be a lot of insensible economists. So you advocate doing exactly what has got us into this mess in the first place !!!! Incredulous.

As you will see from the lessons of Greece, Ireland, Portugal, Spain, Italy and soon France, if you continue to run a growing balance of payments deficit, then one day your creditors stop giving you credit or make the cost of credit unaffordable. This is hardly rocket science. One day the US will crash horribly, but for the moment China is supporting the dollar. I cannot believe that you do not understand this.

Your suggestions are Keynsian, and assume that we live in a closed economic unit, but we do not. Even Keynes recognised that his policies would work only in such an economy. They could work if our levels of pay were significantly reduced such that the new jobs did not create an additional demand for imports, which by implication, means that ALL pay rates would need to be reduced. This would also mean that we immediately became more competitive and our balance of trade deficit should be reversed. Of course inflation is doing this for us as we are not taking enough action elsewhere. We have a lot of paying back to do.

Your suggestions are broadly in line with what Spain and Ireland did

We have been through a false boom and now we are in the bust. But QE has prevented the bust from taking full effect, such that we are now in a stage of stagflation. The key is for our wages and salaries to fall in global terms so that exporters will flourish.

Note ALL economists recognise this as does our cat :-).

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engineertony

Apr 29, 2012 at 22:58

Nothing wrong with borrowing at 5% if you can return 25%. It all depends what you do with the borrowed cash, pay benefits or invest in something that produces jobs and growth.

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