See official ONS statistics
The 2008 credit crunch wrecked havoc on the global economy, as the banking crisis and economic turmoil forced economies into recession. Then, the UK economy shrank by 7.1%, lasting for 5 quarters.
Economists have warned that Britain is in the grip of the weakest recovery in as many as 100 years. Britain’s GDP growth has been roaming between the -1% and 1% mark for more than year and is still struggling to gain momentum.
The economy growth for the first quarter has sparked fears over the economic stability as the figures are slightly worse than expected — the Chancellor’s budget revealed in March expected a return to growth in the first quarter, albeit of a mere 1%.
However, the GDP growth results for the first quarter are a simply an estimate, subject to at least two further revisions in the following months. This means the figure could be a 0.5% contraction or better still a stagnant economy.
Currently, Britain is the only economy to have released GDP figures for the first quarter of 2012.
Fall in output due to major industry wrecks
The Office of National Statistics (ONS) revealed that the fall in GDP was driven by falls in the construction and industrial output, while Britain’s imperative service sector barely grew.
Output of the major sectors were as follows: 0.4% fall in the production sector following a 1.3% fall in the previous quarter, 3% fall in construction output following a 0.2% fall in the previous quarter and a 0.1% in the dominant service industry following a 0.1% fall in the previous quarter.
The ONS revealed that the sharp fall in construction output accounted for the surprise 0.2% fall in GDP growth. This has sparked fears that though not a heavy contributor to the economy, the construction industry could slam the fragile recovery into reverse.
Making up for more than 67% of the economy, the service industry grew by just 0.1%, following a 0.1% decline in the final quarter of last year. A drop in output in the finance and business service industry contributed to the shock GDP contraction.
More pressure on the government
The shock GDP decline amasses pressure on the government to augment their game and prevent Britain from reaching record decline levels. This has been targeted particularly to Chancellor of the Exchequer, George Osborne to soften his austerity measures.
However Mr. Osborne has decided to stick to his deficit-cutting plans albeit his economic credibility being in shambles as the GDP decline is far from the predicted growth in the 2012 budget.
Question marks are being raised on whether the Bank of England will inject more funds into the economy under its quantitative easing programme. However, this will be weakened by high inflation.
The treasury again blames the Eurozone problems as the main reason behind the first quarter GDP decline. Sources reveal that the Eurozone is predicted to sink into a recession so ‘it would be hard for the UKto avoid one’.
The pound sterling has been devalued against the dollar to $1.6093 and â‚¬1.2184 against the Euro, as investors fear that the UK faces years of stagnant growth.
The release of the recession figures is likely to oppress domestic consumer confidence. However, the light in the midst of these shocking quarter one results is that the UK economy should recover in the second quarter of the year, assuming the Olympics delivers the expected revenues.