| CATEGORY: NEWS AND ANNOUNCEMENTS |
Thu 24 May 2012
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LONDON (SHARECAST) - The UK remains in recession, only more so, according to revised figures from the Office for National Statistics (ONS), which indicated that UK gross domestic product (GDP) fell more than originally estimated in the first quarter of 2012.
GDP fell 0.3% in the first quarter, a worse showing that the initial estimate of a 0.2% decline. That confirms the second quarterly contraction of economic growth in a row, generally regarded as the technical definition of a recession.
Economists had been expecting the initial estimate to be confirmed, but as many of them had been extremely sceptical about the ONS's figures in the first place, that may not count for much. However, in a certain sense the data may actually not be anywhere near quite as weak as they appear at first glance as economists at Barclays seem to point out. Nonetheless, they do warn that, “we think that underlying momentum is likely to remain sluggish in H2 2012, with the economy's growth trajectory only returning to trend next year. Should the euro crisis become more grave, even this modest recovery would be in doubt.”
On a year-on-year basis, GDP was down 0.1%, the first annual fall since the final quarter of 2009.
The situation in the construction industry is even worse than first thought, with construction output tumbling 4.8%, its biggest quarterly fall in three years. The ONS had originally put first quarter construction output 3% lower.
For all the talk of government cutbacks and the metaphorical hair-shirt the Chancellor of the Exchequer, George Osborne, is wearing, a 1.6% quarterly rise in government spending - the biggest increase in four years - prevented the GDP picture from being even bleaker, as it contributed 0.4 percentage points to GDP.
Household spending rose 0.1%, as consumers kept a tight rein on outgoings. That was the smallest rise in six months, adding weight to the views of pundits and politicians who argue that Osborne ought to have a Plan B to his slash and burn deficit reduction strategy.
Fixed capital formation dropped at a 0.3% quarter-on-quarter pace whereas net imports subtracted 0.1 percentage points from GDP. Changes in inventories took away another 0.6 percentage points.
Commenting on today’s data, economists at Barclays add that, “in the absence of firms running down inventories, we would have seen cumulative growth in the economy of around 0.8% over the last two quarters, rather than a 0.6% output decline.
Stockbuilding data are notoriously volatile and subject to revision, and so the large negative contribution from this area may be reduced as more detailed information on output and expenditure becomes available. However, firms may have run down stocks in response to weakening business confidence as fears over the euro area have mounted. It is notable that growth in final domestic demand - excluding the impact of net trade and stock-building - has strengthened while GDP growth has dropped off, suggesting that concerns about Europe have overtaken domestic austerity as the principal drag on growth (see chart below). Moreover, as domestic credit conditions have tightened as banks respond to euro risks, diminished access to working capital may have encouraged firms to carry lower volumes of stocks.”
AB
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