25th April 2012

Schroders Quickview: UK Q1 GDP - UK slips back into recession

Azad Zangana, European Economist, 25 Apr 2012

It will be remarkable if the Bank of England does not respond with more Quantitative Easing. We expect an additional £50 billion next month.

The ONS’ preliminary estimate of Q1 GDP showed the economy had contracted by -0.2%. As this follows a -0.3% contraction in the economy in the final three months of last year, it means that the UK economy has slipped back into a technical recession. Year-on-year growth fell to zero.

Within the details, the construction sector made the biggest negative contribution; shrinking by 3%, while output from the industrial sector was also negative; falling by 0.4%. However, the biggest disappointment was the service sector, which was widely expected to grow by about 0.5% and only managed 0.1% over the quarter.

Commentators will be quick to question these numbers – the construction data in particular. However, the final published numbers from the ONS on construction are much more reasonable than had been feared by economists, so the real disappointment has been the service sector. There is room for revisions to these numbers given that they are early estimates, but we doubt they will be large enough to make this ‘double-dip’ go away.

To read the full article, please click here.

Investments