Recession not as bad as feared

A recession is defined as at least two successive quarters of negative growth. This was the first double-dip recession since 1975.

Now even a good result for the current quarter combined with more growth in the final three months may not be enough to prevent 2012 from being the first year of negative growth since 2009, when the economy shrank by 0.4 per cent.

‘If this is to be avoided, we need a V-shaped year to provide enough growth in the last two quarters to balance out the declines in the first two,’ said Dhaval Joshi, managing editor with research company BCA. 


‘That could be quite tough to do. It will not be easy in this environment. We are at the mercy of external forces such as the future of the euro.’

Vicky Redwood from Capital Economics said: ‘Of course, the GDP figures may in the future be revised up further. Nonetheless, given the drags from the fiscal squeeze, eurozone crisis and high domestic debt levels, we still doubt that a strong recovery lies ahead.’

Earlier this month, the Bank of England slashed its earlier forecast of 0.5 per cent growth for this year to virtually zero. City and other economists had already reached a similarly gloomy conclusion. 

George Buckley, Deutsche Bank, said the revised figures improve the likelihood of further quantitative easing.

‘I think it makes QE more likely,’ he said. ‘It’s not our main call at the moment, we don’t think they’ll do any more QE but certainly if this data persists … if the core of domestic demand – consumption, investment or private sector domestic demand – remains weak, then it would be consistent with further QE, but certainly we know that in the second quarter there were a few one-off effects which were bound to dampen GDP.’ 


The improved GDP figures are unlikely to ease the pressure on Chancellor George Osborne who came under fresh fire to boost the economy last week when figures showed a shock increase in public sector borrowing in July.

A spokesman for the Treasury said: “Britain is dealing with some very deep-rooted problems at home and a very serious debt crisis abroad, and that is why the healing of the economy is proving to be a slow and difficult process.

‘Compared to two years ago, the deficit is down, inflation is down, and there are more private sector jobs.

‘The Government will continue to give its undivided attention to the economy – for example with recent announcements on infrastructure and lending.’ 


The fall in production was revised up from minus 1.3 per cent to minus 0.9 per cent while the ONS said construction fell 3.9 per cent rather than 5.2 per cent as previously estimated.

The figures suggest the extra bank holiday for the Queen’s Diamond Jubilee and the washout start to the summer did not have as much of an effect as previously feared.

Economists believe the extra bank holiday may have knocked as much as 0.5 per cent off GDP, but the ONS said it was too early to measure the effect.

The services sector was not revised higher despite a better than previously thought 0.8 per cent uplift in retail sales in June.

In another grim sign for the high street, household spending decreased 0.4 per cent in the second quarter, despite falling inflation easing the pressure on consumers.

There are fears that the economy will struggle to pull out of its double-dip recession in the current quarter as the eurozone debt crisis slows global growth.

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