UK back in recession as GDP shrinks 0.2% in first quarter
2012-04-25 12:13:09
Britain's economy contracted by 0.2 percent in the first quarter of 2012 plunging the country back into recession, according to the preliminary estimate from the Office for National Statistics (ONS).
This is the second quarterly contraction after a 0.3 percent drawback in the last quarter of 2011, meeting the techincal definition of a recession.
It is the first double-dip recession for 30 years.
The UK economy was held back by very poor construction sector data, as output decreased by 3.0 per cent in Q1 2012, following a decrease of 0.2 percent in the previous quarter.
Domestic economic woes, weakening global markets, and the ongoing eurozone debt crisis are all hindering a UK recovery.
"It's a very tough economic situation," said Chancellor George Osborne in a statement.
"It's taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime."
Ahead of the GDP figures sterling was up to a seven and a half month high against the dollar, at $1.6172.
Recent economic data suggested that the UK economy was picking up.
PMI data for the first quarter showed that the UK's service sector, which accounts for around three quarters of the country's GDP, grew at its fastest rate in two years.
Manufacturing sector activity hit a 10-month high.
"The news that the UK economy has re-entered a technical recession is extremely disappointing and is definitely a surprise given the broadly encouraging UK figures that have characterised the past couple of months," Richard Driver, analyst for Caxton FX, said.
"It is the same old story of the services sector propping up UK growth and the manufacturing and constructions sectors failing to contribute.
"The light at the end of the tunnel is that the UK economy should pick up in the second half of the year, assuming the Olympics delivers the boost to growth that is expected."
There were also signs of life in the retail sector, with retail sales volume growing by 1.8 percent on the month in March, the biggest monthly rise in over a year.
Retailers had been suffering as consumer confidence ebbed amid high inflation, unemployment, and energy bills coupled with stagnant wages.
Inflation rose in March to 3.5 percent, up from 3.4 percent the previous month.
This spread unease in the Bank of England who forecast that inflation would fall to the government's 2 percent target by the end of the year.
In May the Bank will decide on whether to expand its quantitative easing programme, called the asset purchase facility, which sees it buy up high quality assets, such as gilts, to improve market liquidity.
The programme's current target is £325bn, after two extensions on the original allotted £200bn when it started in January 2009.
Osborne is relying heavily on the Bank to help get the UK economy moving through monetary stimulus in the absence of public spending, as the government pursues austerity measures in its attempt to cut the public purse's budget deficit.
Latest public spending data from the ONS showed that the government met its deficit reduction targets set by independent fiscal watchdog the Office for Budget Responsibility
The budget deficit hit £11.1bn in March, excluding the temporary effects of financial interventions.
Public borrowing went up in the same month, however, hitting £18.2bn in March, the highest for that month in two years and more than economists were forecasting.
This brought net public debt to £1.022tn - equivalent to 66 percent of GDP.