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Europe
UK data shows double-dip recession
Figures shows economy contracted by 0.2 per cent in first quarter of 2012, piling pressure on government.
Last Modified: 26 Apr 2012 17:03

The UK economy has slid into its second recession since the world financial crisis first hit, with new official data indicating a fall in output for the second consecutive economic quarter.

The dip in the first three months of 2012 will pile pressure on the embattled coalition government of Prime Minister David Cameron.

The Office for National Statistics (ONS) said on Wednesday that Britain's gross domestic product (GDP) fell 0.2 per cent in the first quarter, after contracting by 0.3 per cent at the end of 2011.

The numbers stood in contrast to many economists' forecasts for 0.1 per cent growth in the country's $2.4 trillion economy.

The forecasts were upset by the biggest fall in construction output in three years, coupled with weak service sector growth, and a fall in industrial output.

The figures are a blow for Britain's Conservative/Liberal Democrat coalition, which has slid in opinion polls since a poorly received annual budget statement in March.

The coalition now risks losing local elections across the country, due to be held on May 3.

Cameron's government has promised to eliminate Britain's budget deficit over the next five years, an effort that will be hampered by the evidence that the economy is not growing.

Slow recovery

During the 2008-2009 recession, the UK's economy contracted by 7.1 per cent.

Recovery since then has been slow, with the eurozone debt crisis, government spending cuts, high inflation and a damaged banking sector all working against the government's efforts.

The data released on Wednesday showed that output is still 4.3 per cent below its peak in the first quarter of 2008, and the economy has only grown 0.4 per cent overall since the government took power in the second quarter of 2010.

Output in Britain's service sector - which makes up more than three quarters of GDP - rose by just 0.1 per cent in the first quarter, after falling 0.1 per cent in the last quarter of 2011.

Industrial output was 0.4 per cent lower, while construction - which accounts for less than eight per cent of GDP - contracted by three per cent, the biggest fall since early 2009.

The government's Office for Budget Responsibility has forecast growth of 0.8 per cent by the end of the year. The new data shows that first quarter output is currently no higher than from a year ago.

Bank warning

The Bank of England has said that there is a risk of another contraction in the second quarter of 2012.

The central bank is unlikely to provide further monetary stimulus through quantitative easing however, due to high inflation.

The bank, and a number of private-sector economists, had argued before Wednesday that the underlying health of Britain's economy was stronger than ONS data suggested, due to relatively upbeat private-sector surveys and a fall in unemployment.

The ONS's preliminary estimates of GDP are the first released in the European Union, and are based partly on estimated data.

On average, they are revised by 0.1 percentage points up or down by the time a second revision is published two months later, but bigger moves are not unheard of.

Source:
Agencies
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