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Economy slips back into recession

25th Apr 2012
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The economy has fallen back into recession after GDP contracted 0.2% in the first quarter of the year, according to the latest Office of National Statistics (ONS) figures.

This follows a 0.3% decline in the final quarter of 2011 and means that the UK is now officially in recession again - sending the country into its first double-dip since the 1970s.

The latest "shock" results will add pressure on the government to soften its austerity drive, however Chancellor George Osborne said this morning that we must maintain the cuts despite slipping back into recession.

He said: "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.”

The economic slump was led by a 3% decline in in construction output - the biggest fall for three years. The ONS added that a fall in public sector investment had contributed to the large fall in the construction sector.

In addition, output of the production industries decreased by 0.4% and output of the service sector increased by 0.1%.

KPMG chief economist, Andrew Smith commented on the data: “Output remains broadly unchanged from its level in the third quarter of 2010 and, four years on from its pre-recession peak is still some 4% down– making this slump longer than the 1930s Depression.”

Looking forward, he added: “Output is expected to remain weak in the second quarter and with extra holidays, the Jubilee and the Olympic Games distorting the picture over the summer it will be some time before the underlying picture is clear. But even if activity recovers in the second half, overall this looks like being - at best - another year of weak growth, held back by squeezed real incomes and public spending cuts. Recovery postponed (again).”

Richard Murphy said in his blog he suspects during the course of this year we will come out of recession, “but only just”. He added that there is only one way to restore balance in our economy: “for the government to spend now on the creation of new infrastructure projects, new green energy projects, on the backlog of repairs that need to be undertaken in our public sector properties, in providing services that people need, and in investing with business in our future in sectors such as non-carbon energy.”

The 0.2% contraction in GDP is an early estimate, compiled using 40% of the data gathered, and is subject to at least two further revisions in the coming months.

According to David Ingall, of Yorkshire-based accountants JWPCreers, “The 0.2% shrinkage is only a statistic. We have to keep on going – there is no choice.”

The impact of the figure is more to do with its impact on business and conumer confidence, he explained. “One major problem is our neighbours across the channel and their refusal to accept that they have to resolve the issues surrounding their currency.

“The imbalance of trade within the Euro, with Germany taking advantage of the discounted Euro exchange rate but refusing to transfer that benefit throughout the eurozone, means that there is an inherent instability within the group. Until that issue is tackled there can be no confidence as there will always be the fear that there will be another crisis.”

For further debate on the causes, effects and progress of the economic downturn, visit our Economy discussion group.


Replies (13)

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By justsotax
25th Apr 2012 16:04

is it ok to be thoroughly unconvinced

that the current cuts are working.....or should we wait for another 6 months worth of declines before we accept that maybe....just sometimes have to spend your way out of trouble.....? 

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Replying to Fastlane:
By sluglet
26th Apr 2012 11:18

The credit card is maxed out!!

justsotax wrote:

that the current cuts are working.....or should we wait for another 6 months worth of declines before we accept that maybe....just sometimes have to spend your way out of trouble.....? 

Given that government debt alone is >£1 trillion (approx £17k for every man, woman and child in the country) is it really sensible to borrow even more or presume that we can fix the problem in 1-2 years? The underlying problem in both USA & Western Europe is that we've been maxing out the credit card for too long. I certainly wouldn't advise an individual who's been doing that that the way out is to go and get another card, so I don't see how that can make sense for us to do it collectively either. The interest alone on £1T is about £800 per person or about £2k for every person in full-time employment. Frankly I'd rather see the government get debt down (even if that means pain in the short term) so that my £2k can actually be spent on something useful rather than just being spent on paying interest to the Chinese government.


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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
25th Apr 2012 16:23

Alternative view from the Purchasing Managers' Institute

Chris Williamson from the PMI circulated a statement challenging the ONS figures. 


"Not for the first time, the official data and survey data are sending conflicting signals," he wrote.

"PMI surveys suggest that GDP grew at a robust pace of as much as 0.5% in the first quarter. Manufacturing, services and construction all enjoyed solid growth, according to the surveys. Although many headwinds undoubtedly persist, business sentiment has improved markedly since the dark days of late last year, largely attributable to additional action by the Bank of England and ECB as well as an uplift in consumer confidence from the lows seen last year, helped in turn by a drop in inflation.  Instead, the official data suggest that services managed to scrape growth of just 0.1%, industrial production fell 0.4% and construction output collapsed 3.0%.

"The disappointing GDP data also contrast with other official data, which indicate that retail sales grew 0.8% in the first three months of the year and the labour market to have shown some signs of improvement. Other business surveys besides the PMI have also shown resurgent business confidence in the first quarter, notably surveys from the British Chambers of Commerce and the Markit/IPA Bellwether survey of marketing executives, the latter showing confidence hitting the highest for nearly two years."

He added that "misleading, gloomy official data" heralding a double-dip recession might shatter the revival of consumer and business confidence seen so far this year, and could even drive the economy back into a real recession. 

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By Barry Hawkins
25th Apr 2012 22:48

Where do these surveys get their data from

It sounds to me like an attempt to discredit official statistics when they give a message that certain people did not want to hear.

In 40+ years of working in accounts I have completed many official returns but never seen one from either the PMI or the ITEM club, could their sampling techniques be the problem! 

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Chris M
By mr. mischief
26th Apr 2012 11:40

Not credible

I find it hard to understand trained finance professionals who think we can spend our way out of this.

True, the "Keynsian" approach normally works and stimulates growth to kick-startr things.  But normally prudent Governments in the good times have built up a war chest so that when they throw money at the economy they retain credibility and interest rates don't rocket out of control.

As Liam Bryne put it so well, "We've run out of money".  In the good times people went crazy with spending and that includes politicians as well as individuals.  The Government is walking along a knife-edge ridge.

On one side, throw too much money at the economy and give into the soft money fans and you fall down the same slope Greece has done and Spain looks like doing.

On the other hand, I'd have liked the Budget to include an extra £4bn or £5bn on infrastructure spending.  Because the other side of the knife-edge ridge is continued and sustained zero to low growth.


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By justsotax
26th Apr 2012 11:54

But pain for who....

you may be happy to see people lose their happy to lose yours (or your business) as part of the pain, after all it is just collateral damage?  I am not saying that your principles are wrong....just that we still haven't seen the majority of the what then.


So Imagine this was a business....they have maxed out their credit card....but need to get more they move out of their office and set up at home, cut the marketing budget and hope that a customer finds them by driving past their house....?....or at some point do you suggest getting a further loan and with it have  a growth plan, a marketing strategy, something that will give quick wins and also long term wins that will enable them to repay the debt and also survive and thrive......just a thought.



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Replying to Ian McTernan CTA:
By sluglet
27th Apr 2012 12:29

Meanwhile back in the real world ...

justsotax wrote:

So Imagine this was a business....they have maxed out their credit card....but need to get more they move out of their office and set up at home, cut the marketing budget and hope that a customer finds them by driving past their house....?....or at some point do you suggest getting a further loan and with it have  a growth plan, a marketing strategy, something that will give quick wins and also long term wins that will enable them to repay the debt and also survive and thrive......just a thought.

It's a nice idea but there are basically two problems:

1. You assume that there is indeed business out there. Our main market is the EU which is for the most part in an even worse situation than us. And the USA which is probably our next biggest market is only slightly better.

2. In terms of the government and local councils having "growth plans" and "marketing strategy" the reality is that for the most part they're run by bureaucrats who couldn't run the proverbial brewery and will generally spend the money on more bureaucracy, jobs for the boys and having committee meetings about committee meetings.

If we want to see growth then what we really need is to scale back government red tape, spending on non-jobs and taxes so that the entrepreneurs and business people who really know how to generate growth can get on with it.

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Chris M
By mr. mischief
26th Apr 2012 13:06

some deficit reduction ideas

Some deficit reduction ideas:

1.  The person on the local council who carriedout a detailed "Black Bin Survey".

2.  The planning folk who held up a client's very sensible re-development for 8 weeks because they did not like the design of an awning.

3.  The guy in HMRC who refused to just key in a post code despite admitting that the address in the system had no postcode, and insisted I write in with that change to him.

I reckon if just the people on this one site came up with these "non-jobs" or "jobsworths" we could probably take 5,000 FTE's worth out of the Government budget just like that.  And the impact to the consumer of public services would be nada.

We are nowhere near the point where the public sector has had all the fat cut out.

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By justsotax
26th Apr 2012 13:22

Well given that the majority of cuts are still to come...
then you will probably get your wish.....(although given the PC nature of redundancy in the public sector I suspect alot of good people will be pushed thru the door instead).

Will the country start to see growth as a result?

Making cuts is the easy part (especially if you are not directly affected by them) - its getting the growth that is the problem.....and you don't need to be a 'trained financial professional' to know that......

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By ireallyshouldknowthisbut
26th Apr 2012 17:48

Lies and statistics

Does anyone actually believe anyone can really measure the economy to within 0.2%?

Variations are just noise in the figures at that level.

The most realistic headline would be "UK economy still about the same size as it was for the past year and a half"

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By dstickl
26th Apr 2012 19:08

Why not cut employers NICs 4 OAPs>SPA caught by IR35, & get ...

Here's a cut that'd make sense - even though it'd hit some of "Labour's" sacred cows: 

Why not cut employers National Insurance Contributions for Old Age Pensioners aged more than State Pension Age caught by IR35 (for a start) thus allowing politicians to then truly claim that no OAP pays NICs, and get them (i.e. OAPs, not politicians - perish the thought!) off the streets and/or buses and into work - thus reducing their risk of dementia and having to go into NHS hospitals?

After all, some of them - who already have knowledge, skills & experience - know how to get up in the morning (unlike some of UK youth) and could reduce the need for so-called "economic migrants" to come to UK, thus reducing any further rise in UK's social security costs budget!

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By weaversmiths
27th Apr 2012 15:03

Wherever the fault lies ...

we need to get out of this mess and that doesn't include borrowing copious amounts of money from China or wherever and giving it to the IMF.  I used to say that we needed more females in the Govt but I was tought to eat my words when Maggie Thatcher let the side down by not knowing when to leave and the present females are abysmal.  Surely someone knows how to do a bit of housekeeping because that is all it is. It is time that the government realised that this is not junket time.  This lot continually look like rabbits caught in the headlights not knowing where they are going - doesn't inspire confidence.

 I believe the dross has been eliminated from, certainly, the Civil Service by previous cutbacks and we are at a crucial point where we can say "do you job or get out" to the remainder across the board and this includes, especially, those at the top who have managed over the years to establish themselves with  high salaries and are, as we are in this mess,  totally unsuitable in their posts. We should not miss this opportunity.

The idiot Osborne is so deluded that he has, at a stroke, more than probably lost 4.4million votes by attacking the grey vote,  and maybe touched the consciences (though I doubt it) of the very high earners by putting more money in their pockets. Seemingly his mates - just part of the junket.  Think the "Granny Tax" wont make a difference?   Believe me  it will, I have personal experience(:-).   Prepare for the next Labour Government - now that IS a worry.



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By Katty
30th Jun 2012 19:31


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