Has the UK really fallen back into recession?

Published on 25 April 2012 2 comments

By John Hawksworth, Chief Economist


Today's preliminary data showed a small decline in GDP of 0.2% in the first quarter of 2012, implying a mild technical recession following the 0.3% drop in Q4 2011. However, these are only very preliminary data and there are reasons to believe that they could ultimately be revised up given that services growth of just 0.1% appears weak compared to indications from the Purchasing Managers Index (PMI) and other business surveys. Also, a 3% fall in construction output in Q1 2012 seems much weaker than recent construction PMI surveys would suggest.

Furthermore, a longer run perspective shows real GDP in Q1 2012 unchanged from a year earlier, while excluding volatile oil and gas output it was actually up slightly by 0.2% over the past year. So a reasonable representation of the data for the last year is that the economy has been relatively flat. Other indicators, such as the recent small fall in unemployment in the three months to February and the relatively strong retail sales growth figures for March, would also point to an economy showing very modest underlying growth rather than one heading back into recession.

There are still many uncertainties surrounding the future economic outlook, not least in regard to the ongoing eurozone crisis and global oil prices. The UK economy is clearly still going through a difficult period but nothing like the deep recession we saw in 2008 and early 2009. So we need to put these latest GDP figures into perspective and not talk the economy down too much on the basis of one set of highly preliminary estimates.

Contact: John Hawksworth | Tel: +44 (0)20 7213 1650


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Comments (2)

Mike Taylor commented:

Hi John,

Given that these figures are not catastrophic, how would you compare this slight dip in GDP and general flatline since 2008 to Japan since the end of the bubble period?

Are we too heading for a lost decade (or, indeed, two lost decades) where economic growth has never been properly re-established?

Mike

John Hawksworth commented:

Thanks for your comment Mike. I would agree that the UK economy is going through a tough period with little net growth over the past 18 months. But I'm still cautiously optimistic that, barring a catastrophic meltdown in the euro zone, we should avoid the kind of lost decade seen by Japan in the 1990s.

The main reason is that the UK authorities and banks have tried since 2008 to get to grips with the problems caused by the global financial crisis, rather than letting them fester as was the case following the bursting of the Japanese land price bubble in the early 1990s. Having said that, as and when the UK does recover, we are likely to see lower trend growth than we got used to in the period to 2007 - more like 2% per annum than 2.5-2.75%.

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