Why UK economy will double-dip recession 2012

World Economic outlook Why UK economy will double-dip recession 2012,uk gdp growth forecast q1 2012 , uk inflation rate forecast q1 2012 : Britain has plunged into the first double-dip recession since 1975 and is enduring its longest economic slump for a century, shock figures confirmed yesterday.

But the Prime Minister insisted it would be ‘absolute folly’ to heed Labour calls to change course and borrow more money to try to get out of a debt crisis.

Economists had expected official data to show the economy grew by 0.1 per cent between January and March. Instead, it suffered an unexpected 0.2 per cent slump, following a 0.3 per cent contraction in gross domestic product in the last three months of 2011.

Two quarters of negative growth mean Britain has officially entered a recession, three years after the last one in 2009.

It is the first double dip for 37 years and a nightmare scenario for Chancellor George Osborne, who predicted a rapid return to growth when he embarked on his austerity programme, and Mr Cameron, who had previously declared Britain ‘out of the danger zone’.

The Treasury pointed out that the eurozone, on which Britain depends for trade, was forecast to be in recession.

It suggested Britain was being dragged down by other countries whose economies have turned negative, including Italy, Holland, Ireland, Portugal, Denmark, the Czech Republic, Slovenia and Greece.

Mr Cameron said the figures were ‘very, very disappointing’, adding: ‘I don’t seek to excuse them, I don’t seek to try to explain them away.’

‘There is no complacency at all in this government in dealing with what is a very tough situation, which frankly has just got tougher.’

Insisting that not one business organisation or international economic body was suggesting the Government should reverse its austerity drive, he added: ‘The one thing we mustn’t do is abandon spending and deficit-reduction plans, because the solution to a debt crisis cannot be more debt.’

The most important thing for families and businesses, the Prime Minister said, was to keep interest rates at record lows rather than risk them spiralling upwards if international markets began to doubt Britain’s ability to pay its way.

Mr Osborne admitted it was taking ‘longer than anyone hoped’ to recover from ‘the biggest debt crisis of our lifetime’.

He added: ‘Over many years, this country built up massive debts, which we are having to pay off. The one thing that would make the situation worse would be to abandon our credible economic plan and deliberately add more borrowing and even more debt.’

Deputy Prime Minister Nick Clegg said Britain was ‘only just beginning to grasp’ the depth and breadth of the ‘profound trauma’ experienced in the economy, and rejected ‘inevitable calls for the Government to lurch this way or that’.

 The downturn is expected to be nothing like as severe as the last one, which wiped 7 per cent off GDP and carried on for more than a year.

Economists even believe there is a possibility that yesterday’s provisional figures from the Office for National Statistics will be revised.

Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club, said: ‘Our reaction to these figures is one of disbelief. The divergence between the stronger survey data and dire official output estimates is virtually unprecedented and must raise significant question marks over the quality of the data.’

Labour leader Ed Miliband said the figures were proof that the Government’s ‘catastrophic’ plan had failed. He described the downturn as ‘a recession made by the Prime Minister and the Chancellor in Downing Street’.

The figures mean Britain is in the grip of the longest economic slump for 100 years – worse even than the Great Depression.

‘It’s a miserable day for the economy as a whole,’ said Michael Saunders, the London-based head of European economics at investment bank Citigroup. ‘This is the worst recession recovery cycle of the last 100 years – worse than the Thirties.’

George Buckley, chief UK economist at Deutsche Bank, said Britain was braced for ‘a return to the 1970s’ when the economy was blighted by high unemployment, rising inflation and weak growth.

‘Fiscal austerity, private sector debt reduction, European sovereign uncertainty and sticky inflation all present challenges to the recovery,’ he said.

The latest slump was driven by a 3 per cent decline in the construction sector in the first quarter of 2012 – the sharpest drop in output for three years.

Manufacturing fell 0.1 per cent while activity in the powerhouse services sector rose 0.1 per cent. Retail sales were boosted last month by panic-buying of petrol amid fears of strikes by tanker drivers.

Investors believe the return to recession could persuade the Bank of England to restart the printing presses, having already pumped £325billion of emergency funds into the economy through quantitative easing.

Bank Governor Sir Mervyn King recently warned that the economy might ‘zig-zag’ in and out of growth over the coming months.

Richard Driver, an analyst at currency expert Caxton FX, said: ‘The news that the UK economy has re-entered a technical recession is extremely disappointing.

‘The light at the end of the tunnel is that the UK economy should pick up in the second half of the year, assuming the Olympics delivers the boost to growth that is expected.’

Source dailymail.uk

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