New recession fears grow as UK economy contracts by 0.2%

January 25, 2012
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Economic activity in the UK shrank by 0.2% in the last three months of 2011, according to figures released today by the ONS (Office of National Statistics).

The drop in activity comes after the marginal growth of 0.6% in the third quarter last year. The contraction raises serious concerns over the direction of the economy as public spending cuts start to bite and the continuing problems in the eurozone impact on the UK.

In total the UK economy grew by 0.9% in 2011, with the Bank of England predicting only 1% growth this year.

The Chancellor, George Osborne, said the figures were disappointing but not a surprise.

Lloyds TSB Commercial regional director Paul Spencer said: “Small businesses were reporting slower growth in the last quarter of 2011, so this contraction in GDP is not unexpected.

“However our most recent figures, from December’s Purchasing Manager’s Index, show that there was a slight upturn in business activity at the very end of last year. 

“Clearly economic conditions remain challenging, but there is strong evidence that some businesses are more worried about the economy than is justified by their own performance. The reality is that there are still opportunities open to small and medium-sized enterprises, not least those connected to London 2012 and through resilient export markets. If the economy is to recover, and if confidence is to be restored, these are opportunities that businesses must grasp quickly.”

Institute of Directors South West chairman Gerry Jones said: “The tightrope walk between recession and recovery continues. We’ve taken one step towards a double-dip recession, and it’s now probably 50-50 as to whether we’ll take the second, with a fall in output this quarter as well.

“It’s important to stress that the 0.2% fall in GDP is not large and could be reversed as QE2 (the Bank of England’s second round of quantitative easing – or injecting cash into the economy) works through. But even if output does increase in the first quarter, we’ll continue to experience the feel-bad jobless recovery for some time yet.”

He said the combination of falling output and today’s minutes from the Bank’s Monetary Policy Committee, suggest QE2 could be further expanded next month.

“The tipping point for recession or recovery remains economic developments in the eurozone. If the euro crisis gets worse, sustaining UK recovery looks almost impossible,” he said.

 

 

 

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