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UK economy slips back into recession following contraction


24/04/2012

By Marcus Leach

A 0.2% contraction in the UK economy means that the country has provisionally slipped back into recession, according to data released by the Office for National Statistics (ONS).

The final quarter of 2011 saw the economy shrink by 0.3%, and now the first quarter of 2012 has witnessed a 0.2% contraction.

A recession is defined as two consecutive quarters of contraction. However, the figure released today is not the final figure. Instead it is subject to change as it is based on only about 40% of the information that will be used to reach later figures.

“On a day in which a month’s worth of rain is due to fall it is oddly fitting that the UK has slipped back into a technical recession for the first time since the 1970s," Jeremy Cook, chief economist at foreign exchange company, World First, said.

“The much-feared fall in construction (-3.0%) seems to be the main factor and thoughts will now turn to the Bank of England and whether further QE is warranted. Mervyn King has already warned that Q2’s figure is likely to be poor given the extra bank holiday as a result of the Queen’s Jubilee, and we know that business surveys slipped as we went through Q1, so further revisions may exacerbate this negativity.

“Sterling has taken one in the teeth as a result, selling off across the board in the aftermath, although gilt yields have also slipped on the basis that more QE may be forthcoming.”

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