According to figures from the Office for National Statistics [ONS] the UK economy shrank by 0.2% between January and March, which following on from the 0.3% decline in the last quarter of 2011 takes the country back into a double dip recession.
The ONS said output of the production industries decreased by 0.4% and construction by 3% but output of the services sector, which includes retail, increased by 0.1%.
Many commentators are questioning the poor performance of the construction sector [based on a survey of 8,000 companies], which although it accounts for less than 7% of GDP is largely responsible for pulling the growth in the economy back into negative figures.
The second quarter of 2012 is also expected to show a negative figure due to the extra bank holiday for the Queen's Diamond Jubilee reducing output.
ECONOMIC PARTNERSHIP COMMENT
It is possible that the preliminary estimate will be revised when more information becomes available but it may not be revised upwards; indeed the first estimate of GDP for the last three months of 2011 showed a contraction of 0.2%, but this was later revised to a contraction of 0.3%.
In any event, these figures are deeply at odds with the second quarter of the recovery in 2010 when the economy grew at 1.1% and the third quarter’s 0.7%. They are unlikely to encourage businesses to invest the cash pile they have been sitting on since the end of the last recession in 2009 [see earlier story] just at a time when private sector investment is desperately needed to stop the economy bumping along the bottom.
For three years stimulating a recovery has been balanced against reducing the UK deficit but increasing numbers of commentators are now saying that government policy has concentrated too much on the latter with unintended consequences for the former. Raising VAT to 20% stoked inflation, exacerbated by steeply rising commodity prices, at a time when household disposable income was plummeting due to wage restraint driven by rising unemployment. On top of this the economy struggled to come to terms with the unprecedented public sector spending cuts imposed by the coalition government [nearly 80% of which have yet to bite].
The government has few tools left in its economic toolbox. Over the past four years it has borrowed £500bn from the markets, injected £325bn of quantitative easing into the economy, held interest rates at their lowest level in over 120 years and watched the value of the £ plummet by 20% of its trade-weighted value making our exports comparatively cheap. But none of this has stimulated a recovery and it is estimated that it will take another two years just to get back to the 2008 levels of output in the economy. To make matters worse, the deficit has stubbornly refused to come down either.
Locally, Brighton & Hove has done well to weather the recesison and austerity to date but there is a question mark over how long it can go on bucking the trend. It seems compelling to conclude that we can expect more drudgery for the next three years. It has never been more important for business owners to psyche themselves into a positive frame of mind and accept that we are probably in this for the long haul.
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