Experts predict third quarter of recession
Economists added to last week’s UK recession woes by predicting the economy would see a third consecutive quarter of contraction this year.
Last week, the Office for National Statistics (ONS) released its preliminary estimate for the UK’s GDP in the first quarter of 2012, suggesting the economy had contracted by 0.2 per cent.
The contraction was attributed to weakness in the construction and production sectors, with the former shrinking by 3 per cent.
Combined with a 0.3 per cent contraction in the final quarter of 2011, this constitutes a recession – defined as two consecutive quarters of shrinkage. Combined with the recession of 2008-09, it has activated the dreaded ‘double-dip’ recession scenario.
Economists said that the major development in the ONS’s latest data was a worse-than-expected reduction in the growth of the service sector, which had widely been expected to grow by 0.5 per cent, but only grew by 0.1 per cent.
Azad Zangana, European economist at Schroders, who predicted the double-dip last November, said: “There is room for revisions to these numbers given that they are early estimates, although we doubt they will be large enough to make this double-dip go away.
“Indeed, we are forecasting a further fall in GDP for the second quarter which will be caused by the extra special bank holiday to celebrate the Diamond Jubilee.”
Matthew Cheung, chief economist at market analysts RANsquawk, agreed, saying the UK had taken a “recessionary bullet” in order to repair fiscal problems.
“After several months of conflicting economic data, the run-up to these numbers had more than a hint of Russian roulette to it,” he said. “Now the Olympics boost is all but over, construction could easily continue to be a serious drag on the economy.”
He added the second quarter of 2012 would take a hit from the extra bank holiday in June.
Marcus Bullus, trading director at MB Capital, said the light at the end of the UK’s economic tunnel “was a train” and that action needed to be taken “quickly”.
“With inflation proving far stickier than expected, negative growth and a eurozone on borrowed time, the UK economy is in for a very tough few years,” he said.