UK economy slumps back into recession

April 25, 2012

Britain has slumped back into recession, official figures released earlier today show.

The economy shrank by 0.2% in the first three months of this year. Coming after the contraction of 0.3% in the last three months of 2011, this technically puts the country back into recession.

The Office for National Statistics (ONS) said there was a sharp 3% fall in construction output, the biggest fall for three years, between January and March.

A recession is defined as two consecutive quarters of contraction.

The economy shrunk by 7.1% in the 2008-2009 recession and recovery since has been weak.

Today’s ONS data shows the economy has only grown by just 0.4% since the Government took office two years ago.

Output in Britain's service sector – which makes up more than three quarters of GDP – rose by just 0.1% in the first quarter after falling 0.1% in the final three months of last year.

Industrial output was 0.4% lower. The Office for Budget Responsibility forecasts growth this year of 0.8%.

Phil Smith, managing director of lobbying and support group Business West, which also runs Bath Chamber of Commerce, said: “These figures are disappointing and a cause for concern over the short term but they paint an unduly pessimistic picture of the state of the economy as the longer term prospects remain positive.”

Business surveys, including the latest Business West Quarterly Economic Survey, have shown a more positive picture with tbusiness confidence remaining strong. Some 69% of respondents were either 'confident’ or 'very confident' about their business prospects over the coming 12 months, up 3% on the quarter.

Mr Smith continued: “These figures are at odds with the experiences of many of our Chamber of Commerce members, who continue to operate with guarded optimism.  While the statistics may say we're in a technical recession, it’s important that we do not talk ourselves into defeat. Obviously there is a psyhological barrier of negative growth, however given the context of weak growth over the past few years, today's announcement doesn't  change much for business in reality

 “However, the figures serve as a reminder that Government needs to go further in defining its economic vision, in order that business can have the confidence to invest and grow.

“It is clear that economic growth in the UK remains much too low. Businesses, including our chamber members need to see a reallocation of priorities  that will bolster business growth. That means reducing regulation, encouraging exports and improving infrastructure. While the government must persevere with plans to reduce the deficit despite these figures, it must introduce more measures to empower businesses to drive recovery.”

IoD South West chairman Gerry Jones, who met deputy Prime Minister Nick Clegg this morning, said: “It is disappointing to see the UK drop back into recession. However, we must not let the media coverage damage business confidence.

“The South West has some fantastic SMEs (small and medium-sized enterprises) that can create the growth our local economy needs.

“Nick Clegg told me this morning that his Government will continue to support business and urge the banks to lend to us.”

John Hawksworth, chief economist at accountants PwC, said today’s figures were very preliminary data and there were reasons to believe they could ultimately be revised up .

“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,” he said.

Services growth of just 0.1% appeared weak compared to indications from the Purchasing Managers Index (PMI) and other business surveys, he said, adding: “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.

"There are still many uncertainties surrounding the future economic outlook, not least in regard to the ongoing eurozone crisis and global oil prices. The UK economy is clearly still going through a difficult period but nothing like the deep recession we saw in 2008 and early 2009.”

The CBI was also surprised by the data. Director-general John Cridland said: “Since the turn of the year business confidence has improved and, while still challenging, underlying economic conditions also appear to have strengthened.

“In particular, the weakness of the services sector data does not tally closely with a range of survey indicators suggesting that the sector has been picking up through the first quarter.

“There are indications that the economy is slowly recovering from the blow to confidence and activity which resulted from last autumn’s turmoil in eurozone financial markets.”

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