UK’s GDP Contracts More Than Expected

The UK economy shrank by 0.3 percent in the first quarter of the year, more than the previous estimate of 0.2 percent contraction.

The Office for National Statistics said the downward revision to the first quarter data was the result of a sharp decline in construction output, which fell by 4.8 percent on the quarter.

Year-on-year, the economy contracted by 0.1 percent, the first annual decline since the last quarter of 2009.

In the final quarter of last year, the UK’s economy also shrank by 0.3 perecent, meaning the UK is in its second recession since the 2007-2008 financial crises.

Government spending increased by 1.6 percent, the biggest rise in four years, and it contributed 0.4 percentage points to GDP. The numbers suggest, the government spending went a long way to offset the GDP contraction.

The figures also showed unchanged growth in the service sector of 0.1 percent. Household spending increased by only 0.1 percent, its smallest rise in six months, suggesting that a recovery based on boosting domestic demand is not taking effect. Also, the trade deficit increased to 4.4 billion pounds.

The revised economic indicators raise the likelihood that the Bank of England will consider additional stimulus to protect the economy from the euro zone debt crisis. The Bank has already injected 325 billion pounds into the UK economy through its Quantitative Easing programme to try to boost growth.

The first quarter’s growth figure will be revised again next month.

The prospects for the UK’s economic recovery are quite uncertain as the leaders in the euro zone, Britain’s biggest trading partner, are still far from resolving the debt crisis. There are also concerns that the UK economy will shrink again in the second quarter of the year.

Source: BBC

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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.