UK recession deepens after 0.7% fall in GDP
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UK recession deepens after 0.7% fall in GDP
25 July 2012
The UK recession has deepened, latest official figures have shown, after the output of the economy fell by 0.7% between April and June.
The contraction was much bigger than expected and follows a 0.3% drop in the first three months of the year.
The Office for National Statistics said the fall was largely due to a sharp slowdown in the construction sector.
It said it was not yet sure of the size of the effect of the poor weather and the extra June bank holiday.
This means that these figures, which are the first estimate for what happened in the economy between April and June, are more uncertain than usual.
"The bottom line from all this is that the underlying performance of the economy was probably somewhat better than the headline figure of -0.7% would suggest, having regard to the extra bank holiday and to the poor weather," said Joe Grice from the ONS.
"How much that effect might be is something we won't be able to say or to quantify until we have further experience against which to judge."
The figures could be revised in the coming months as more information comes in. The first estimate is largely based on information the first two months of the three-month period.
"Nevertheless, the overall picture is of an economy that remains fragile,"the ONS said in its latest analysis of the economy.
Prime Minister David Cameron said the figures were disappointing: "They show the extent of the economic difficulties that we're grappling with, not least the situation right across the eurozone where our neighbours are also really struggling.
"Clearly we've got to keep doing everything we can to get out of this difficult situation and provide the growth and jobs that our people and our economy needs."
Chancellor George Osborne said the country faced "big challenges".
"But given what's happening in the world, we need a relentless focus on the economy and recent announcements on infrastructure and lending show that's exactly what we're doing," he said.
In response, shadow chancellor Ed Balls said the "truly shocking" figures showed the government's economic plans had failed.
"If these figures don't make the chancellor wake up and change course, then I don't know what will," he said.
"Thank goodness the Olympics will give our economy a much-needed shot in the arm. But this short-term boost is not enough - we need a plan B now to get the economy moving again and radical reforms to set Britain on a new course for jobs, growth and long-term prosperity."
The ONS did point to some more positive signs for the economy. Employment is growing "modestly", it said, with 181,000 jobs created in the past three months.
With prices rising at a slower rate, the squeeze is also easing on household incomes.
However the output of the economy is still 4.5% lower than it was during its peak before the onset of the financial crisis in 2008.
http://www.bbc.co.uk/news/business-18977084
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It is in their best interest that Olympics will at least bring in profits which will in one way or other help the economy.
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world recession very likely....
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Let the world ends . . . . . No worries
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No recession in Sg.
Huat ah.
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UK economy to shrink in 2012 as quick austerity hurts
Saturday, August 04, 2012 LONDON: Britain’s economy will shrink this year and any meaningful recovery will remain elusive until 2014 as the euro zone debt crisis and the government’s spending cuts weigh heavily on the country’s prospects, a leading think-tank said on Friday.
The National Institute for Economic and Social Research (NIESR) said the country’s output could have been 239 billion pounds higher in total between 2011 and 2021, had deficit reduction been postponed by three years.
NIESR’s analysis together with its forecast of a decline in gross domestic product by 0.5 percent in 2012, followed by only 1.3 percent growth in 2013, will fuel the heated political debate about the speed of Britain’s fiscal consolidation.
The coalition government of Conservatives and Liberal Democrats has so far rejected calls to ease its tough plan of spending cuts and tax hikes, but the pressure is mounting after news that the country is slipping deeper into recession.
The shock drop of output by 0.7 percent in the second quarter - when one-off effects such as an extra holiday to mark Queen Elizabeth’s 60 years on the throne and extremely wet weather compounded the general weakness - was the main driver behind NIESR’s lower GDP forecast for 2012.
The economy was probably still in recession when stripping out those effects, which are likely to lead to a rebound in the headline growth rate in the third quarter, NIESR economist Simon Kirby said.
But more importantly, the economy had not grown over the past two years and the debt crisis in the euro zone - destination for over 40 percent of British exports - would continue to hurt Britain, Kirby said.
The 1.3 percent growth for 2013 was masking an even weaker momentum as some of the growth was due to inventory build-ups.
Austerity hit: However, unemployment looked now set to peak at 8.6 percent next year, below NIESR’s previous forecast of around 9 percent.
And despite weaker growth, the government was still likely to meet its goal to erase the structural budget deficit by 2017.
The think-tank applauded the government’s recent steps to boost the economy such as the Funding for Lending Scheme to get credit flowing, but it also reiterated its long-standing call for direct spending to kick-start growth.
“It remains the case that there is scope for a less aggressive path of fiscal tightening,” NIESR said.
“The government should consider on-balance sheet funding of key projects, concurrent with a comprehensive restructuring of banks and key funding markets,” the economists said.The think-tank also analysed how an alternative path for fiscal consolidation would have played out.
By postponing any tightening to the 2014/2015 fiscal year, the loss of output would have been smaller because a depressed economy was more vulnerable to the fiscal headwinds, NIESR said.The government launched its austerity programme in late 2010 and the opposition Labour party has since criticised finance minister George Osborne for cutting too fast and too far.
The government’s plan still enjoys support from bodies such as the Organisation for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF), though the IMF has warned that fiscal loosening may become necessary if the economy fails to gain traction over the next six months.
The onus to support the economy has been on the Bank of England, which on Thursday stuck to its plan to buy another 50 billion pounds of government bonds. Most BoE observers see more quantitative easing and even a cut in the base rate.
However, given the impaired banking system such a rate cut was unlikely to provide much of a boost, NIESR economist Kirby said, adding that more purchases of government bonds also showed diminishing returns.
reuters
http://www.dailytimes.com.pk/default.asp?page=2012%5C08%5C04%5Cstory_4-8-2012_pg5_30