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UK falls back into recession

Official figures indicate that the UK has officially fallen back into recession.

According to the Office of National Statistics, the economy shrank by 0.2% in the first quarter, following contraction of 0.3% in Q4 of 2011.

Economists define recession as two consecutive quarters of contraction.

Wednesday’s figure is subject to further revisions, as the latest estimate is onlt based on around 40% of the information which will be used to calculate later figures.

Production industry output declined by 4%, while construction and service sector output fell by 3% and 0.1% respectively.

Helen Goodman MP said: “Today’s GDP figures provide clear evidence that you can’t trust the Tories on the economy.

“The economy has shrunk by -0.2% plunging the UK back into the depths of recession.

“Contrary to George Osborne’s arrogant boasts at taking the UK out of the danger zone, he has imperilled the nation’s finances with his bungled mishandling of the economy.

“The Tories’ key promises to restore growth to the economy and eliminate the deficit in one parliament have been exposed as a hollow sham.

“The truth is that the Tory led coalition government have choked off the recovery, which began under the last Labour government, by cutting too far too fast.

“The country is paying the price for the government’s economically illiterate policies which have damaged growth and jobs.

“It is difficult to see how much longer this out of touch government can justify continuing with these failed policies that have hurt our economy.”

Ian Stewart, Deloitte chief economist, says: “Today’s news that the UK is technically back in recession deals a blow to the UK economy at a time when business confidence had been increasing.

“Rising levels of optimism had not yet led major UK corporates to adopt significantly more expansionary policies. The materialisation of a double dip recession, albeit one likely to last just two quarters, is likely to be seen as vindicating a cautious stance on the part of corporates.

“Corporate cash reserves remain at near record levels and one interpretation is that relatively high levels of cash represent an insurance policy against a volatile environment. Having been wrong footed by a weakening of the economy last year UK businesses may demand greater certainty and more evidence that recovery is on track before they are willing to raise capital spending.”

Bill MacLeod, partner PwC, Newcastle commented: “Today’s preliminary data showed a small decline in GDP of 0.2% in the first quarter of 2012, implying a mild technical recession following the 0.3% drop in Q4 2011.

“However, these are only very preliminary data and there are reasons to believe that they could ultimately be revised up given that services growth of just 0.1% appears weak compared to indications from the Purchasing Managers Index (PMI) and other business surveys.

“Also, a 3% fall in construction output in Q1 2012 seems much weaker than recent construction PMI surveys would suggest.

“Furthermore, a longer run perspective shows real GDP in Q1 2012 unchanged from a year earlier, while excluding volatile oil and gas output it was actually up slightly by 0.2% over the past year.

“So a reasonable representation of the data for the last year is that the economy has been relatively flat. Other indicators, such as the recent small fall in unemployment in the three months to February and the relatively strong retail sales growth figures for March, would also point to an economy showing very modest underlying growth rather than one heading back into recession.

“The UK economy is clearly still going through a difficult period but nothing like the deep recession we saw in 2008 and early 2009. So we need to put these latest GDP figures into perspective and not talk the economy down too much on the basis of one set of highly preliminary estimates.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .