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Britain back in recession

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Britain back in recession
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Britain’s economy has contracted again taking the UK into its second recession since the financial crisis.

Gross domestic product fell 0.2 percent in the first quarter of this year, following on from a 0.3 percent decline at the end of 2011.

Two consecutive quarters of no growth is the official definition of a recession.

Most economists had expected Britain’s economy to eke out modest growth in early 2012.

As well as a slump in financial services and oil and gas extraction the UK suffered its biggest fall in construction output in three years.

The figures put further pressure on Prime Minister David Cameron’s government.

Cameron said they were “very, very disappointing”. He told parliament: “I don’t seek to excuse them. I don’t see to try to explain them away. There is no complacency at all in this government in dealing with what is a very tough situation that frankly has just got tougher.”

The Conservative-Liberal Democrat coalition government desperately needs growth to achieve its target of eliminating Britain’s large budget deficit over the next five years.

However that will be a challenge as many of Britain’s European trading partners are already in recession.

This turn of events is a problem for the Bank of England. It had appeared poised to end its second round of quantitative easing asset buying, having said that it was more persuaded by survey evidence that the underlying economy was strengthening.

“This could be something of a game changer for monetary policy,” said Investec economist Philip Shaw. “With the weakness in the economy pervasive … there is a genuine debate to be had over whether it is wise to suspend QE.”

However, the UK central bank may prefer to focus on upbeat private-sector survey evidence rather than the Office for National Statistics figures.

Reinforcing the divergence between official and private views, the Confederation of British Industry reported the biggest quarterly rise in factory orders for 15 years in data released just after the GDP figures.