UK’s recession worse than expected

By SAPA Time of article published May 24, 2012

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Britain's recession is deeper than first thought according to revised official figures published Thursday that showed the non-eurozone nation's economy shrank by 0.3 percent in the first quarter.

A second estimate of gross domestic product for the January-March period compared with an initial reading of minus 0.2

percent, the Office for National Statistics (ONS) said in a statement. Analysts had forecast no change.

The British economy is in recession, defined as two successive quarters of contraction, after it also shrank by 0.3 percent in the final three months of 2011.

“Today's release is bad news for UK policymakers as it shows the economy faring even more badly than initially thought,” said economist Scott Corfe at the Centre for Economics and Business Research, an independent consultancy.

“Indeed, the latest data show the UK economy performing worse than the eurozone economy, which saw zero growth at the start of the year - meaning the UK's woes cannot even be fully attributable to the debt crisis embroiling the continent.”

Prime Minister David Cameron's spokesman insisted that it was difficult for the British economy to grow when much of Europe was struggling.

“What the (GDP) figure confirms is that it is a very difficult economic situation and we will take time to recover from the biggest financial and debt crisis in our lifetimes.

“We have always made clear ... that if the rest of Europe doesn't grow it would prove hard to avoid a recession here in the UK. We cannot be immune from what is happening on our doorstep,” the spokesman added.

The main opposition Labour party argues that the economy has been harmed by the coalition government's austerity drive.

And the International Monetary Fund warned this week that the government should be ready to cut taxes and increase infrastructure spending if needed, while also praising the policy of heavy spending cuts.

The IMF, which predicts that Britain's economy will return to modest growth in the second half of this year provided Europe's crisis eases, added that the Bank of England should consider cutting further its already record-low interest rates.

On Thursday, the ONS also revealed a slowdown in household spending, which increased by just 0.1 percent in the first quarter, compared with 0.4-percent growth in the final three months of last year.

Household expenditure in Britain has been hit by high inflation, sluggish wage growth and soaring unemployment.

However, government spending surged by 1.6 percent in the biggest increase since the first quarter of 2008, lifted by spending on health and defence.

On an annual basis, the ONS added that GDP was revised down to show a fall of 0.1 percent in the first quarter.

Britain escaped a fierce downturn in late 2009 but fell back into recession in the final quarter of 2011 on the back of state austerity and the debt crisis in major trading partner the eurozone.

Britain's Conservative-Liberal Democrat coalition administration has axed public spending and hiked taxes since it won power in 2010, after inheriting a record deficit from the previous Labour government. - Sapa-AFP

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