UK recession ...

UK recession deeper than thought

24 May 2012

LONDON - Britain is in a deeper recession than previously thought, official figures showed Thursday, in another downbeat development that will likely heap the pressure on the government and the central bank to do more to boost the flagging economy.

The Office for National Statistics said the British economy contracted by 0.3 percent in both the fourth quarter of 2011 and the first quarter of 2012, as against the 0.2 percent rates previously reported. The declines mean Britain is back in recession, officially defined as two straight quarters of negative growth.

Marc Ostwald, strategist at Monument Securities, said the "really striking element" is that the

contraction in the first quarter of the year came despite a "whopping" 1.6 percent increase in government spending — the largest in four years.

"At some stage the fact that U.K. government's talk of austerity is nothing but talk, and the persistence of above-target inflation, will see the U.K. rumbled, and its safe haven status recognized as not being justified by actual facts," Ostwald said.

Britain has retained its gold-plated triple A rating with all three leading credit rating agencies, in contrast to the United States, which is growing solidly, and France, which has not fallen back into recession despite the crisis enveloping the 17-country eurozone.

Thursday's figures will likely fuel expectations that the Bank of England will approve more monetary stimulus this year. On Tuesday, the International Monetary Fund urged both the coalition government and the central bank to do more to boost economic activity.

A big reason behind the downward revision to the first quarter figure was a 4.8 percent contraction in construction output, way more than the 3 percent previously projected.

At the time of the first estimate, some analysts had questioned whether the statistics agency had actually exaggerated the decline in construction since other surveys suggested it was doing better.

The contraction of inventories knocked about 0.6 percentage points from quarter-to-quarter GDP. Analysts said the rundown of inventories could mean that companies are growing more pessimistic about the outlook.

"The pressure will once again mount on the government to change its tack from austerity to growth," said Jason Conibear, director of foreign exchange firm Cambridge Mercantile. "This narrative will only strengthen throughout the rest of the year as economies grind to a halt or stagnate."

The statistics office also said household spending increased by a muted 0.1 percent in the first quarter, while growth in the services sector, which accounts for three-quarters of the economy, was unrevised at 0.1 percent, reversing a drop of 0.1 percent in the previous quarter. Industrial production was down 0.4 percent.

from cnbc