Britain’s First Double-dip Recession Since 1975

The UK’s economy has fallen into its second recession since the financial crisis, after the unexpected 0.2 percent contraction in UK growth in the first quarter of 2012 followed a 0.3 percent fall in gross domestic product (GDP) in the fourth quarter of 2011. According to economists, this recession is signalling Britain’s first double-dip since 1975.

Economists had expected the Office for National Statistics (ONS) data to show the economy grew by 0.1 percent between January and March this year.

A breakdown of the figures showed widespread weakness throughout the economy. Construction output fell strongly by 3 percent between in the first quarter of this year, while the industrial sector contracted by 0.4 percent, and the services sector – which accounts for three quarters of the UK’s economy – grew by just 0.1 percent.

With local elections taking place on May 3rd, there could hardly be worse time for Wednesday’s news from the ONS. The figures triggered immediate attacks on the government from the opposition in parliament

Britain’s economy contracted 7.1 percent during its 2008-2009 recession and has recovered less than half this lost output due to the negative impact from the euro zone debt crisis, public spending cuts, high inflation and a damaged banking sector.

The government desperately needs growth to achieve its target of eliminating UK’s large budget deficit over the next five years. But this will be a challenge as many of UK’s European trading partners are in recession

There was, however, one positive announcement yesterday – after the negative official data released by the ONS, the Confederation of British Industry reported the biggest quarterly rise in factory orders for 15 years.

Britain’s Office for Budget Responsibility forecasts growth of 0.8 percent this year. Wednesday’s data showed that first quarter output was no higher than a year earlier. The Bank of England has warned that there is a risk of another contraction in the second quarter of 2012. Unlike during the previous two quarters, the Bank does not appear keen to provide further monetary stimulus, due to above-target inflation.

Sources: Reuters and Telegraph

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.