The UK economy shrank by 0.3% in the first three months of the year, revised figures have shown last month's initial estimate from the Office for National Statistics (ONS) which showed a contraction of 0.2% were to optimistic. The downward revision was due to a bigger contraction in construction output than previously estimated. In the final three months of last year, the economy also shrank by 0.3%, meaning it is official, the UK is back in recession.
Many economist expect the UK economy to shrink again in
the second quarter of the year and that the Queen's Diamond Jubilee could reduce
output. The shadow chancellor Ed Balls
described Prime Minister David Cameron and Chancellor George Osborne as
"complacent and out of touch".It's now clear that this is a recession made in Downing Street by this government's failed policies," he said. "Despite all the problems in the euro area, France, Germany
and the Eurozone as a whole have so far avoided recession and only
exports to other countries stopped us going into recession a year ago.
The result is that Britain is now in a weaker position if things get
worse in the Eurozone in the coming months."
The British government recently increased spending by 1.6%, this was the biggest rise since the first quarter of 2008, this increase helped
offset some of the factors slowing the economy. The increase was mainly in the areas of healthcare and defense. The figures also showed unchanged growth in the service sector of 0.1%, where household spending increased by the same amount. Compared with the previous year as opposed to the previous
quarter, growth fell by 0.1%, the first annual drop since the final
three months of 2009.
When the first estimate of the GDP figures was released last
month, a number of commentators expressed surprise at the data. Almost everyone agrees that the economy is not recovering properly and with
the uncertainty over Europe hanging over the outlook many feel that the Monetary Policy Committee of the Bank of England will
sanction further quantitative easing (QE) at some point later on this
year. The Bank has already pumped £325bn into the UK economy
through its QE program to try to boost growth and has indicated it is open
to the idea of further cash injections.
Earlier this week, the head of the International Monetary
Fund, Christine Lagarde, said that if the economic recovery continues to
falter, the UK should consider more QE. She also suggested the Bank
could cut interest rates below the current record low of 0.5%. Lagarde did, however, back the government's austerity drive designed to cut the UK's budget deficit. Recently the word "austerity" is often used with negitive connotations, but it is really a substitute for "live within your means". In recent
weeks, there have been growing calls across Europe for a greater focus
on growth, as opposed to austerity. I as well as many economist think Britain is on the right track, even if the path is not easy. You cannot borrow and spend your way to prosperity.