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Double-dip recession for Britain as growth falls 0.2%

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What's Happening?

The UK economy has returned to recession, after shrinking by 0.2% in the first three months of 2012. 

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A sharp fall in construction output was behind the surprise contraction, the Office for National Statistics said.

A recession is defined as two consecutive quarters of contraction. The economy shrank by 0.3% in the fourth quarter of 2011.

Wednesday’s figure is an early estimate and is subject to at least two further revisions in the coming months.

The ONS said the output of the production industries decreased by 0.4%, construction decreased by 3%, and output of the service sector increased by 0.1%.

It added that a fall in public sector investment had contributed to the particularly large fall in the construction sector.

Some have questioned the validity of the ONS’s figures, particularly on the construction industry, which has been volatile in recent quarters.

But Joe Grice, a chief economic adviser to the ONS, said the construction data was based on a survey of 8,000 companies and had been carefully checked and double checked.

The latest figures supported the view that the economy had been “flattish” in the past few quarters, he added.

Shortly after the data was released, the pound fell half a cent against the dollar to $1.6093, and half a cent against the euro to 1.2184 euros.

The UK economy was last in recession in 2009.

‘Missing link’

The BBC’s chief political correspondent, Norman Smith, said the Treasury was again blaming the difficulties facing the UK economy on the eurozone, with sources saying the eurozone is predicted to enter recession and therefore “it would be hard for the UK to avoid one”.

Some 40% of the UK’s exports go to the eurozone.

The Treasury also pointed to the fact that unemployment in the UK is now falling, our correspondent said.

But the Institute for Public Policy Research said the figures were “a further blow for the government’s reputation for economic competency”.

“It is clearly not good news, the missing link in the economy has been confidence,” said Graeme Leach, chief economist at the Institute of Directors.

“These are relatively small falls, so we shouldn’t be too alarmist.

“[But] regardless of the figures, it is the message that comes out to business – to be cautious – exactly when we want them to be a little more aggressive in terms of recruitment and investment.”

‘At odds’

However, some pointed to other recent business surveys, which painted a more positive picture of the economy.

“These figures are at odds with the experiences of many UK businesses, which continue to operate with guarded optimism,” said David Kern, chief economist at the British Chambers of Commerce.

He added that he expected the preliminary estimate to be revised upwards when more information became available.

The preliminary figure is based on only about 40% of the information that will be used to reach later figures.

The first estimate of GDP for the last three months of 2011 showed a contraction of 0.2%, which was later revised to a contraction of 0.3%.

Please note: Information in this blog post is content property of the BBC  and a full version of the article can be found on the BBC website.