News Article

Britain has sunk back into recession!

Britain has sunk back into recession!

First double-dip downturn since the 1970s, which will certainly be piling pressure on the government to slow down its austerity measures.

GDP shrank by 0.2% between January and March, following a 0.3% contraction in the fourth quarter of last year, according to the Office for National Statistics. A technical recession is defined as two or more consecutive quarters of economic decline. Its comes as a shock especially when city economists expected a return to growth, albeit of a meager 0.1%.

This shocking downturn piles further pressure on the government to step up its efforts to boost the economy, and highlight the challenges it faces in reducing Britain's debt from record levels. The fall back into recession will certainly heighten calls for the chancellor to ease up on his deficit-cutting plans. However, George Osborne stuck to his guns on Wednesday morning.

"It's a very tough economic situation. It's taking longer than anyone hoped to recover from the biggest debt crisis 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," said the chancellor.

The UK economy contracted by 7.1% during the 2008-2009 recession, which lasted five quarters in a row. Since then recovery has been slow – the weakest in 100 years, you have to take note and pay attention. The latest decline was caused by falls in industrial and construction output while Britain's dominant service sector barely grew.

 I’m not an economist, but I’m willing to put my neck on the block and say that the underlying strength of the economy is probably much more robust than this data suggests. The danger is that this gloomy data and media headlines delivers a fatal blow to the fragile revival of consumer and business confidence seen so far this year, harming the recovery and even sending the country back into a real recession." Am I worried, Yes, I’m not sure if the country will recover again from a real recession. Just look at spending habits of people, unemployment? Business closing down or looking for ways to save money. These will certainly get much worse.

Britain's service industries, which make up more than three-quarters of the economy, grew by just 0.1% in the first quarter, after declining by 0.1% in the fourth quarter of last year. Growth was held back by a drop in output in the business services and finance sector. Industrial output was 0.4% lower, while construction shrank by 3% – the biggest drop since the start of 2009.

Britain is the first major economy to report GDP data for the first quarter of 2012.

"The most worrying element of this report was the disappointment in services output," said Steven Kirupai director at Brighton Homes letting agent. "Ironically construction, which had the most potential to determine whether or not the UK is in recession, proved much less negative than feared.

The Bank [of England] recently highlighted that it cares most about underlying growth. The data shows underlying GDP had zero growth – still very disappointing. The door is back open to more QE, but the elevated inflation outlook is the biggest obstruction." The BIG question is whether the Bank of England will respond by pumping more money into the economy under its quantitative easing (QE) programme, despite it is hamstrung by high inflation.