UK economy avoids double dip recession according to ONS report

27th April 2011

But the anaemic increase, following on from last year's fourth quarter 0.5 per cent contraction, has prompted some commentators to say we are now in a period of stagflation i.e. sluggish growth and rising prices.

Here is the Office for National Statistics report.  

The Guardian reports Hetal Mehta of Daiwa Capital Markets suggesting that "underlying growth in the UK economy is virtually non-existent".

The construction sector fell the most – 4.7 per cent – though some analysts questioned the fall.  The Sun quotes Ross Walker, chief economist at Royal Bank of Scotland saying: "It's a pretty hazy picture, and there's some difficult terrain ahead. But on balance, it's positive. I simply don't believe the construction number."

Services did well up 0.9 per cent, which is good news, as the sector accounts for 70 per cent of the economy. Within the service sector, business services and finance grew 1.0 per cent. Manufacturing rose by 1.1 per cent. However figures from the CBI industrial trends survey  reported here in the Guardian earlier in the week, show that the sector has seen a drop in orders.  Many manufacturers also believe they will have to pass on the increased price of raw materials to customers.

This gives credence to those who say we are in a period of stagflation.

Schroders European Economist Azad Zangana says: "Snow was blamed for much of the fall in GDP at the end of 2010, but it seems that when we strip out the 'snow effect', the economy has been suffering from stagflation over the past six months – suffering from high inflation, and no growth in real terms."

On the Telegraph's message boards commenter silkcrud believes we are on the right track.

"So no double-dip recession then. Whilst the UK economy is being weaned off the pernicious heroin of tax payer and Bank of England cash bequeathed to us by Labour, any growth is encouraging in my book."

prwrichardson also has an interesting take – overall he says it is good news economically, but it is the poor who will suffer and that means Labour will get back in at the next election.

He writes: "This is good news. It means interest rates will stay low and the pound will continue to devalue. Those of us with assets in Euros are laughing but that's not really important. What is important is that the devaluation will devalue our debt and eventually make us more competitive internationally. The costs will be huge in terms of inflation, unemployment, reduced standards of living etc. and it's going to take a very long time, but it's the poor who will suffer and not those of us who have worked hard and saved in the past. The only downside is that Labour will be back next time round."

Schroders Zangana adds: "The latest snapshot of the UK economy suggests that the Government's austerity measures are beginning to take their toll, yet they have not derailed the recovery all together. However, as the Bank of England had been forecasting a 0.8% rise in growth for the first quarter, the growth numbers today should act as the final nail in the coffin for a May increase in interest rates.

"In our view, most of the risks to the UK economy stem from external factors now, such as the continuing rise in oil prices, and the European debt crisis. We expect the balance between growth and inflation to improve in the second half of the year, which will eventually prompt the Bank of England to raise interest rates – probably in August."

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