UK back in recession

David Cameron says there will be "no change" in the way his government is handling Britain's economy after the country slipped back into recession. Figures show an estimated 0.2% quarterly decline in GDP.

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Recession is a 'surprise'

The CBI was surprised by the announcement from the ONS that the UK is back in recession. John Cridland, CBI Director-General, said:

This disappointing news comes as something of a surprise. Since the turn of the year, business confidence has improved and, while still challenging, underlying economic conditions also appear to have strengthened.

In particular, the weakness of the services sector data does not tally closely with a range of survey indicators suggesting that the sector has been picking up through the first quarter.

Looking forward, there are indications that the economy is slowly recovering from the blow to confidence and activity which resulted from last autumn’s turmoil in Eurozone financial markets.

Balls: Failed policies have plunged us back into recession

David Cameron and George Osborne complacently boasted their austerity plan had taken our economy out of the danger zone, but their failed policies have plunged us back into recession.

We consistently warned that their austerity plan was self-defeating and that cutting spending and raising taxes too far and too fast would badly backfire. David Cameron and George Osborne arrogantly and complacently dismissed people who warned of the risk of a double-dip recession and the country is now paying a very heavy price. Their economic credibility is now in tatters.

– Ed Balls, Shadow Chancellor

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'Government must be bold to boost business'

Commenting on today’s GDP figures showing that the economy is back in recession, John Walker, National Chairman, Federation of Small Businesses, said:

It is worrying that we are back in recession and proves that 2012 is going to be a difficult year for the economy. High inflation will continue to squeeze business and consumer spending and falling GDP in the eurozone will impact key trading partners.

Planned increases in fuel duty due later this year will also hit as fuel prices continue to rise, damaging bottom lines. In order to strengthen economic recovery, Government policies must be bold to have an effect on the ground to boost business investment and job creation as well as consumer confidence.

Fears the Queen's Diamond Jubilee will hit the economy

The ONS's first estimate is done before more than half of the data has been gathered and some economists are hopeful that today's figure will be revised higher in coming months.

But economists warn that the economy will continue to struggle amid stubbornly high inflation and rising unemployment, while confidence and exports will be hampered by the eurozone debt crisis.

Fears the Queen's Diamond Jubilee will hit the economy Credit: Reuters

There are fears that the extra bank holiday for the Queen's Diamond Jubilee will hit the current quarter, and it is not known what impact the Olympics will have in the summer.

'Suspicions GDP will be revised up - but it will be too late for the headlines'

Economic forecaster IHS Global Insight's reaction to GDP in the first quarter of 2012:

Along with the Bank of England and many other analysts, we are hugely sceptical about the first-quarter GDP data showing contraction of 0.2% quarter-on-quarter.

Nevertheless, the fact is that the data - for now at least - show a 0.2% quarter-on-quarter drop in GDP in the first quarter which means that the UK is officially back in recession as it follows a drop of 0.3% quarter-on-quarter in the fourth quarter of 2011. This will undoubtedly lead to negative headlines which could well hit consumer and business hard and make sustainable growth harder to achieve in the near-term at least.

We strongly suspect that sometime down the line that the GDP data will be revised up to show modest growth in the first quarter, but by then the recession headlines will have been written.

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TUC: 'Austerity isn’t working'

Commenting on the news that the UK economy is back in recession, TUC General Secretary Brendan Barber said:

This is worse than expected. There has been no growth over the last year, and the economy is 0.5 per cent smaller than six months ago.

Austerity isn’t working. The government should look across the Atlantic and follow President Obama’s alternative that has reduced unemployment and brought growth back to the USA.

Osborne: 'Tough economic situation taking longer than anyone hoped to recover'

Chancellor George Osborne at 11 Downing Street Credit: Reuters

The Chancellor George Osborne said:

"It's a very tough economic situation. It's taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime - even after the recent fall in unemployment.

But over many years this country built up massive debts, which we are having to pay off."

'Services output main disappointment' in GDP figures

Vicky Redwood Chief UK Economist at Capital Economics said:

The UK’s back in recession. The 0.2% contraction in GDP in Q1 contrasted with expectations for a small gain and meant that output dropped by 0.5% over Q4 and Q1 together. Admittedly, the fall was driven by a sharp fall in construction output and there are question marks over the reliability of these numbers. That said, the drop in construction was smaller than anticipated and even without this, output would have done no better than stagnate.

The main disappointment was the meagre 0.1% rise in services output in Q1 - the surveys had pointed to services growth of 0.5% or more. Admittedly, the MPC indicated at its recent meeting that it will be putting greater weight on the more upbeat business surveys. But we would not dismiss today’s figures so readily. And even if the underlying picture is stronger than the official GDP figures show, there is no guarantee that the recent pick-up will continue. Indeed, we remain comfortable with our view that GDP will contract by about 0.5% this year.

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