The UK economy is now back in a state of technical recession, latest official data confirmed today.
The UK economy contracted by 0.2% in the first quarter of 2012. This is according to the preliminary estimate on growth in gross domestic product (GDP) published by the Office for National Statistics (ONS).
The construction sector saw the biggest fall in output. ONS notes that "construction sector output decreased by 3.0% in Q1 2012, following a decrease of 0.2% in the previous quarter."
The contraction seen in the first quarter of 2012 compares with the latest revised figure of 0.3% contraction in GDP growth for the fourth quarter of 2011.
Reuters notes that this is the UK's first double-dip recession since the 1970s.
The technical definition of a recession is two successive quarters of negative GDP growth.
Osborne: UK is 'in a very tough economic situation'
George Osborne has issued a statement acknowledging the that the UK finds itself in "a very tough economic situation," but once more reaffirming his commitment to economic austerity measures:
It's a very tough economic situation. It's taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime. The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt.Reactions to the double-dip recession news
Here are some reactions to the GDP data release:
- Economist Chris Dillow has tweeted his initial reaction to the news that the economy is back in recession. Dillow says: "Obsession with small drop in GDP is statistical fetishism. Even if GDP had grown 0.2% in Q1, it would still have been a poor performance."
- @MarkitEconomics draws interesting parallels with earlier GDP data releases: "As @WilliamsonChris points out...deju vu today. Cast mind back to Q3 09. First est was -0.4%. Latest 0.2%. http://tinyurl.com/7hhhlsf"
The UK economy has already effectively experienced a double-dip recession, argues the Guardian's Larry Elliott. He says:
"There has been no growth in the economy since September 2010, with three quarters of falling output punctuated by two quarters of expansion. To all intents and purposes Britain has had a double dip recession, even though the technical definition of two successive quarters of negative growth has not been met. [...] the real drag on the economy has been household consumption, by far the biggest element of gross domestic product."Today's GDP reading for Q1 2012 will be prone to revision
It should be noted that today's GDP data release for Q1 2012 does not tell the complete story.
As the BBC points out, the figure released today "is only the preliminary estimate from the Office for National Statistics (ONS), based on only about 40% of the information that will be used to reach later figures."
It is of course possible that estimates of GDP growth in the first quarter of 2012 will be revised upwards, taking it back into positive territory.
ONS releases its first revised estimate of GDP growth in Q1 2012 next month, on Thursday 24 May 2012.
GDP forecasts round-up: Where do we go from here?
So what happens next?
Here we present an overview of latest predictions as to the potential path of UK economic growth in 2012 and beyond.
Here is a round-up of recently-published GDP predictions, which represent something of a mixed bag, to say the least:
- The British Chambers of Commerce (BCC) warns that the outlook for GDP growth past Q1 2012 is uncertain: "[G]rowth is likely to weaken in Q2 due to the additional Bank Holiday for the Queen's Diamond Jubilee. The London Olympics in Q3 may also distort the growth figures." It has revised its 2012 GDP forecast down from 0.8% to 0.6%. 2013 unchanged at 1.8%.
- The Ernst & Young ITEM Club predicts UK GDP growth of 0.4% in 2012.
- The IMF expects the UK economy to grow by 0.8% in 2012.
- NIESR says it expects the UK's current "economic weakness to be temporary, with the
recovery taking hold in 2013. [...] We do not expect output to pass its
peak in early 2008 until 2014."
- The OBR recently raised its estimates for UK GDP growth in 2012. It expects the UK economy to grow by 0.8% in 2012, having previously predicted 0.7% growth.
- Standard & Poor's (S&P) has reaffirmed the UK's AAA credit rating as "stable".