Britain’s recession continues

15Jan

Britain is in its longest recession since 1955, official data showed yesterday, confounding expectations of a return to growth in the third quarter and heaping more pressure on the government before elections.

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Gross domestic product (GDP) unexpectedly slumped 0.4 per cent between July and September, compared with a fall of 0.6 per cent in the second quarter, the Office for National Statistics announced.

Economists had widely expected Britain to exit recession in the third quarter with a return to growth of 0.2 per cent after five quarters of shrinking GDP.

Reacting to yesterday’s data, Chancellor of the Exchequer Alistair Darling recalled that the Labour government had predicted a return to growth only “at the turn of year”.

But the main opposition Conservatives, expected to win the general election due by June, described the contraction as “deeply disappointing”.

“It’s clear (Prime Minister) Gordon Brown’s recession plan has not worked, there is no economic leadership in this country and we urgently need a change of direction to get this country working again,” the Conservatives’ economic spokesman George Osborne told Sky News television.

“There are many millions of people who will be deeply concerned to see that Britain is still in recession six months after France and Germany came out of recession. It destroys the myth that Britain was better prepared” to tackle the financial crisis.

Other countries exiting recession

Britain had hoped to join France, Germany and Japan in exiting recession – defined as two consecutive quarters of negative growth – while the United States is expected to have returned to growth in the third quarter.

“The third-quarter UK GDP data are a real shocker and desperately disappointing, showing that the UK economy remained in recession for a sixth successive quarter,” said IHS Global Insight economist Howard Archer.

“It is impossible even to take comfort from the fact that the rate of contraction moderated to 0.4 per cent quarter-on-quarter… especially as the eurozone and the US seem highly likely to have grown in the third quarter.”

Weak performances

A far weaker-than-expected performance from Britain’s powerhouse services sector was behind the unexpected third quarter outcome.

“The main surprise was the 0.2-per cent drop in services sector output,” Capital Economics analyst Vicky Redwood said.

John Cridland, deputy director-general of the Confederation of British Industry business group, said the figures were “disappointing and concerning”. He added: “Recovery, when it comes, will be fragile and volatile.”

The current recession has so far seen the economy contract 5.9 per cent, very close to the downturn of the early 1980s when the total shrinkage reached 6.0 per cent.

Britain’s economic recovery was already expected to be far from rosy ahead of the general election given the nation’s massive and mounting debt and unemployment.

The country’s public deficit ballooned to a record high in September as the state purse buckled under the weight of a recession that began in the second quarter of 2008.

The number of unemployed in Britain climbed to 2.47 million in the three months to July – the highest level since May 1995.

The Bank of England has sought to combat the recession with record-low interest rates and a radical policy of quantitative easing – pumping new cash into the economy to help kick-start lending to businesses and individuals.

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