The UK stays in recession as output shrinks by 0.2%

Britain today cemented its position as the only G20 country still in recession as new figures confirmed that the economy shrank by 0.2 per cent between July and September.

Analysts had forecast that today’s figure — the final estimate of national output for the third quarter — would show that the economy stopped contracting or even grew.

But while gross domestic product (GDP) contracted at a slower pace than the previous -0.3 per cent reading, the figures confirmed a sixth successive quarter of recession – the country’s longest downturn in history.

Today’s figures will serve as a further embarrassment for the Government, which is facing a general election next year.

Although the Chancellor, Alistair Darling, has said he expects the country to emerge from recession at the “turn” of the year, Britain’s failure to recover in the third quarter has left it trailing behind other major economies that have seen a return to growth.

America, China, Japan, France and Germany all returned to positive growth in the third quarter while most recently Ireland, which has been suffering from a severe downturn, also revealed it had left recession.

Expectations that Britain had exited recession had been raised by a major revision, earlier this month, by national statisticians, in their assessment of the construction sector.

However, the sharp upgrade to construction output was offset by weaker services and industrial production output.

Howard Archer, chief UK and European economist at IHS Global Insight, the consultancy said: “While any upward revision to GDP is welcome news, there is no denying the fact that it is a disappointment that the contraction in UK GDP in the third quarter was only trimmed to 0.2 per cent quarter-on-quarter, particularly given the substantial upward revisions that had already been announced on construction output.”

He added, though, that the latest data and survey “pointed to growth finally getting underway in the fourth quarter.”

The markets were shocked in October when the Office for National Statistics said its initial estimate for GDP showed that the economy shrank by 0.4 per cent in the third quarter.

Analysts had thought the country had clambered out of recession with an increase of between 0.1 per cent and 0.2 per cent.

Last month the ONS revised the estimate to show a more modest 0.3 per cent decline.

Earlier this month, the ONS then boosted hopes of a further upward revision, with an announcement that its assessment of the construction sector had been wide of the mark.

It said that construction output rose by 2 per cent in the third quarter — contradicting its earlier estimate of a 1.1 per cent drop. The figure, it said, would increase the overall GDP figures by 0.2 percentage points.

Philip Shaw, an economist at Investec, said: “We still find it hard to believe fully that the economy was contracting in the third quarter.”

Since Britain entered recession, in the second quarter of 2008, total economic output has fallen by 6.03 per cent. The decline is the sharpest since quarterly records began in 1955. Most experts expect the economy to return to growth in the final three months of this year.

However, many suggest any recovery will remain anaemic into next year.

The Treasury has forecast economic growth of 3.5 per cent in 2011 — a forecast branded as overly optimistic by many analysts.

The CBI has forecast the economy will grow by 1.2 per cent next year and by 2.5 per cent in 2011.

If the Treasury forecast proves false, the Government will have to find more money to cover its spending as tax receipts will not have risen fast enough.

However, the Bank of England recently predicted economic growth of more than 4 per cent in 2011.

Related Post