The credit crunch is the first double dip recession the UK has suffered in nearly 40 years and was something that experts had predicted would be avoided.
The Office for National Statistics unveiled the depressing data, showing the gross domestic product for Britain has dropped by 0.2%. This shrinkage, added to the 0.3% contraction seen in the last quarter of 2011, means that the criteria for recession have been fulfilled.
Across the board, many experts had suggested that the UK would narrowly squeak clear of tumbling into another credit crunch, with growth of around 0.1%. The Chancellor, George Osborne, asserted frequently his confidence that the figures would show a small amount of growth. The actual results are likely to come as an unwelcome surprise.
During the course of the recession in 2008 and 2009, the UK’s economy shrunk by 7.1%, but despite having pulled its way clear, recovery has been slow and tortuous. Sources suggest that the pace is the slowest seen since World War II.
The eurozone debt crisis has undoubtedly taken its toll but problems within the banking sector, combined with stubbornly high inflation and austerity measures, have also hit the country.
Overall, the economy has only expanded by 0.4% since the coalition government took control in the middle of 2010. This means that GDP still lies 4.3% lower than during the highest point of 2008 and output remains no higher than the same time last year.
Approximately three quarters of the GDP figure is made up from the services sector and this saw minimal growth of 0.1% in the first three months of 2012. After dropping by 0.1% in the previous quarter, the increase was a welcome relief, but the finance sector and large business services stopped the rise from being any greater. Construction was also heavily lower, shrinking by 3%, but the impact was trivial, as the sector only makes up for around 8% of GDP. Industrial output also contracted, down by 0.4%.
The Bank of England has already warned that the UK faces a difficult second quarter, with the additional public holiday expected to impact on performance. However, despite the fears over lack of growth, the Bank is unlikely to inject any further stimulus into the economy because of the ongoing battle to get inflation under control. The recent rise in the monthly figure has effectively ruled out the possibility of any action. The head of the Bank of England, Sir Mervyn King, has already warned that the economy is likely to continue to ‘zig zag’ throughout 2012.
The ONS has said that actions taken by the government were part of the reason for the unexpected contraction. It pointed to the reduction in government spending as being one of the primary factors in the construction sector shrinking, with a quarter slashed from the budget for public housing.
The Prime Minister has admitted that the latest GDP results are ‘very, very disappointing’ and conceded that he cannot ‘explain them away’ or ‘excuse’ them.
He added that the drop back into recession was not as a result of any ‘complacency’ and insisted that the government would continue to implement their policies, despite progress being ‘painstaking’ and ‘difficult.’
The figure could yet still change as the construction industry data is based on an estimate for the third month. However, a spokesperson for the ONS, said there would have to be a large and significant difference in the estimate and the actual figures, in order for a change to the net result.
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