UK Deeper in Recession
Figures from the Office of National Statistics (ONS) this morning say that the UK economy is further into recession as economic output for the last quarter dropped by 0.7% (April – June)
Despite various analyses saying that the economy would only stagnate, the UK actually went into recession again back in Q1 2012 as the growth rate went into negative figures for the second quarter in a row (Q4 2011 -0.3%, Q1 2012 -0.2%)
The latest figure of -0.7% is bigger than expected and is being blamed on weakness in the construction industry (-5.2%), a fall in manufacturing output (-1.3%) and a tiny but still negative 0.1% drop in service sector production.
Other factors that may have affected the economy include the additional bank holiday for the Queen’s Diamond Jubilee weekend and blaiming it on the rain – June was the wettest in a hundred years. May’s figures were apparently "buoyant" but the loss of a bank holiday that month may have contributed to the slight uplift. June, with an extra two working days lost; The Silver Jubilee in 1977 and Golden Jubilee in 2002 caused similar drops in economic activity.
Austerity measures and public sector spending cuts were not mentioned in the ONS releases, which are still preliminary estimates.
This is the first double-dip recession since the 1970s when high inflation and rising unemployment made a dent in the economy. Inflation recently dropped to 2.4% in June, with UK unemployment falling to 2.61 million this month (July).
The slump in GDP has been called a "shock" by one city analyst and a "surprise" by the CBI, but there’s no disputing that the trend from -0.3% to -0.2% and then the sudden drop to -0.7% is anything other than a huge disappointment.
Chancellor George Osborne stuck to his principles on the need to continue to cut the deficit, despite the gloomy figures this morning:
"We’re dealing with our debts at home and the debt crisis abroad. We’ve made progress over the last two years in cutting the deficit by 25% and businesses have created over 800,000 new jobs."
"But given what’s happening in the world, we need a relentless focus on the economy and recent announcements on infrastructure and lending show that’s exactly what we’re doing."
The shadow chancellor, Labour’s Ed Balls,was quick to condemn his opposite number, adding that he expected the Olympics to be a "shot in the arm". He also acknowledge that more is needed to boost the economy, saying that Osborne should "wake up and change course".
for the full figures, see the ONS’ GDP: Preliminary Estimate, Q2 2012