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UK recession confirmed by shock 0.7% slump: Keynes would shudder

by Dylan Lobo on Jul 25, 2012 at 09:33

UK recession confirmed by shock 0.7% slump: Keynes would shudder

GDP figures have confirmed the UK economy contracted for the third quarter in a row with a much steeper than expected 0.7% decline in the second quarter.

The shock follows contractions of 0.4% in the last quarter of 2011 and 0.3% in the first three months of the year.  

The data confirms the UK is now stuck in the longest double dip recession since quarterly records were introduced in 1955. The last time the UK found itself in a double dip was in the 1970s when runaway oil prices and the miners’ strike weighed on the economy, although the dip only lasted two quarters.   

The news comes after the International Monetary Fund lowered its growth forecasts for the UK to 0.2% in 2012 and 1.4% in 2013, warning the UK faced ‘significant challenges’ from unemployment and the eurozone.

Currently around 8.1% of the population are out of work and with Spanish bond yields at crisis point the immediate future for the UK looks bleak.

The news also puts another big question mark over the Coalition’s cost cutting programme, which aims to slash £123 billion of debt, which stands at around the £1 trillion mark, or 66% of GDP.

Lee McDarby of Investec Corporate Treasury was stunned by the numbers.

'Truly shocking GDP figures in the UK have taken the wind out of sterling’s sails this morning. Investec’s economists forecast a weaker number than most of the market but nobody saw a number this bad coming,' McDarby said. 

'Poor weather and an extra bank holiday have been blamed on the quarterly contraction of 0.7%, but data like this suggests that the UK can’t hide behind Europe’s woes for much longer. After these poor GDP figures, if we see a recovery in the pound over the course of the day after the initial sell off then sterling really may be a bullet-proof currency.'

Meanwhile, Fidelity Worldwide Investment director of asset allocation, Trevor Greetham, said in these circumstances it is up to the government to boost its own spending plans.   

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4 comments so far. Why not have your say?

S-ville

Jul 25, 2012 at 10:37

So far George Osborne has blamed the previous government, the Greeks, the weather, Europe as a whole and now the royal family for our economic woes.

Presumably it'll soon be all the fault of the fairies at the bottom of his garden...

Might be worth a peek in the bathroom mirror.

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Anonymous 1 needed this 'off the record'

Jul 25, 2012 at 14:28

As we all know, there is a housing shortage.

With the stroke of a pen Osborne could liberalise planning controls in the South East of England (let’s say allowing villages to increase their size by 10% within the village boundary), leading to a surge of employment and the associated trickle down effect that would produce. Lower house prices/rents = more disposable income = more spending etc

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Geoff Downs

Jul 25, 2012 at 15:58

Is it not true though that Keynes policy was to save in the good times and spend in the bad. As all Governments have spent in the good times to keep the electorates happy there is now no more leeway to spend our way out of the debt crisis.

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Clive B

Jul 25, 2012 at 17:51

Anon 1

I agree with your point about the need for more housing, especially in the South East.

But, would it not have an undesirable side-effect ?

Namely, more houses brings the price of the existing stock down. Good for employing more people, good for buyers, BUT bad for those then forced into negative equity. Bad also for banks who have those assets - now depreciating - on their books.

Would that not make banks' balance sheets look even more shaking, necessitating more banks rescues and also discouraging the banks from lending ?

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