GDP plunges 0.7% in a “very nasty surprise” for Chancellor

Posted by Margaret Gerber on Jul 21, 2012

Britain slumped to its longest double-dip recession in more than 50 years today after shock figures revealed the economy shrank by a worse-than-expected 0.7% between April and June.

Gross domestic product (GDP) a broad measure for the economy fell for the third quarter in a row and by much more than the 0.2% expected by forecasters, according to the Office for National Statistics (ONS).

The dire performance, which represented the biggest quarterly fall since the depths of the financial crisis in the first quarter of 2009, was hindered by an extra bank holiday for the Queens Diamond Jubilee and the wettest April to June period on record.

The figure is the ONSs first estimate and may be revised in coming months, but it suggests the UK is mired in the longest double-dip recession since quarterly records began in 1955 and it is believed to be the longest since the Second World War.

The last double-dip recession was in the 1970s, when the economy was hamstrung amid soaring oil prices and a miners’ strike, but that only lasted two quarters.

Todays grim economic reading will heap more pressure on the Government and fuel criticism that Chancellor George Osbornes austerity measures are choking off the recovery.

The UKs economy is 0.3% smaller than when the coalition came to power in the second quarter of 2010, the ONS figures showed.

However, the statistics body said the Diamond Jubilee celebrations and the weather played a significant part in the latest slump, although it said it was too early to put a figure on its impact.

Mr Osborne said: We all know the country has deep-rooted economic problems and these disappointing figures confirm that.

Were dealing with our debts at home and the debt crisis abroad. Weve made progress over the last two years in cutting the deficit by 25% and businesses have created over 800,000 new jobs.

But given whats happening in the world we need a relentless focus on the economy and recent announcements on infrastructure and lending show thats exactly what were doing.

The pound fell against the euro as the data increased chances that the Bank of England will pump more emergency money into the economy or drop interest rates further.

Vicky Redwood, chief UK economist at Capital Economics, said there was a possibility that the GDP figures are underestimating the true strength of the economy but added that it would take pretty hefty revisions to make the recent performance look even half decent.

She added: Whats more, the UK still faces significant obstacles, not least the knock-on impact of the renewed tensions in the eurozone. Even allowing for a decent bounce-back in the third quarter, we still expect the economy to contract by about 0.5% this year and to grow by only 0.5% in 2013.

Howard Archer chief UK and European economist at IHS Global Insight described the figures as a very nasty surprise indeed.

GDP contraction of 0.7% quarter-on-quarter in the second quarter is far deeper than anyone expected and is a very disappointing and worrying performance, he said.

While part of the GDP contraction in the second quarter can be attributed to lost activity from the extra days public holiday resulting from the Queens Diamond Jubilee celebrations and to the very wet weather hitting retail sales and construction output, the economys weakness clearly runs far deeper than that. This is highlighted by the fact that this was the third successive quarter of appreciable contraction, and the sharpest since the first quarter of 2009.

The weakness of the economy is also highlighted by that fact that GDP is now 1.4% below the third quarter of 2011 and  4.5% below its peak level in the first quarter of 2008.

Shadow Secretary of State for Wales Owen Smith MP, said: The scale of the contraction revealed in todays figures, more than double the size anticipated by most commentators, is extremely concerning. We are now in the deepest double-dip recession since the 1950s and there can be no more excuses from the Tory-led government.

In the past, George Osborne has blamed the snow, the Royal Wedding and the Eurozone for his failure to grow the economy. And, in Wales, Tory Ministers Cheryl Gillan and David Jones have increasingly looked to blame the Welsh Labour Government, for example last week with the news that unemployment in Wales had increased by two thousand.

But the government has well and truly run of out excuses. What todays GDP figures confirm is that the whole UK economy is in recession as a direct result of the Conservatives failed economic strategy and that Wales, as is so often the case when the Tories are in power, is bearing the heaviest price.

The figures reiterate the urgent need for the government to change course and take immediate action to boost jobs and growth.


Similar Posts:

Share
 

Leave a Reply