The United Kingdom has confounded expectations by sliding
back into recession, according to official figures revealing
that even the painfully slow recovery eked out since the
2008-'09 economic crisis has disappeared. And analysts say
Prime Minister David Camerons government has few good
options available to spur recovery.
Wednesdays numbers show the U.K. entering double-dip
territory where the economy suffers a new
recession before output has recovered from the last
one for the first time since the crisis years
of the 1970s.
This is a worse performance for the economy than the
Great Depression of the 1930s, said George Buckley, chief
U.K. economist at Deutsche Bank in London. Fiscal
austerity, private sector debt reduction, European sovereign
uncertainty and sticky inflation all present challenges to the
The 0.2 percent fall in output for the first quarter of this
year, which followed a 0.3 percent decline in the previous
three months, shocked many economists in the City of London
most of whom had predicted a small rise. Several
responded by suggesting the precipitous 3 percent fall in
construction activity the main driver behind
the overall decline for the economy as a
whole might be revised in future months to
show a less severe slide.
Economists acknowledge, however, that regardless of later
revisions that may or may not show a narrow escape from
recession, the gross domestic product (GDP) figures confirm a
distressing picture: The U.K.s recovery from the severe
downturn that ended three years ago has been extremely
disappointing. In addition to the fall in construction,
industrial production declined by 0.4 percent, and the huge
service sector rose by only 0.1 percent.
Deutsche Bank noted that in the past, output has bounced
back with a vengeance following recessions to grow at about 3
percent a year. This is above the long-run trend of growth of
the U.K. economy, which is around 2 percent. However, Deutsche
calculates that since the previous recession ended in mid-2009,
growth has averaged only 1.1 percent.
This is partly because government departments and households
are trying, at the same time as each other, to reduce high
debts accumulated in earlier years.
The euro zone debt crisis has imposed an added
burden depressing demand in a 17-member
currency bloc that accounts for about half of U.K. exports.
Many economists think the euro zone also returned to recession
in the first quarter.