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If only a double-dip was an ice cream

In the last few minutes it has just been announced that the UK is officially back in recession. Gross Domestic Product fell by 0.2% in the first quarter of this year, which follows on from a decline of 0.3% in the fourth quarter of last year. The official definition of a recession is two consecutive quarters of negative growth. And, it is a double-dip recession because we were previously in recession during 2008-2009, recovered, and now have slipped back again.

According to the Office for National Statistics there was a strong contraction in construction of 3% which weighed heavily on the final figure. Overall output in the production industries fell by 0.4%, while service sector output rose by 0.1%.

One thing to bear in mind is that this is a preliminary estimate, which is based on 40% of the available information. It is possible the growth figure could be revised upward at a later date – or of course downward!

There were one or two positives. For example, the panic buying of petrol did help to maintain retail sales and we could, or course, hope for more panic in the future.  But, on the other hand, we will expect an additional loss of output from the extra bank holiday in the current quarter, as a result of the Queen’s Diamond Jubilee which will weigh down on the second quarter’s figures.

How important is this fall in GDP? Many were hoping to see a figure of plus 0.1% growth, and I suppose most of us would like our wages to go up by 0.1%, rather than down by 0.2%, but on the other hand this would not make much difference to our spending power. In the same way the fact that we are in a ‘technical recession’ does not mean that we are going the way of Greece.

The government is on target with its borrowing, but the argument continues to rage as to whether austerity is the right way forward. Should we be going for a fiscal stimulus to get the economy moving again?

All in all, today’s figure is more likely to have a psychological impact rather than an economic one. But – if such an impact causes consumers to hang on to their cash because they are fearful of the future, and causes companies to continue to hold back on investment, then the implications will be much greater.

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Posted in economic growth

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