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Instant View - Q1 GDP fall tips economy back into recession
April 25, 2012 / 8:57 AM / 6 years ago

Instant View - Q1 GDP fall tips economy back into recession

LONDON (Reuters) - The economy slipped back into recession after data on Wednesday showed output contracted by 0.2 percent in the first three months of this year, the first double dip since the mid 1970s.



”We are hopeful of possible upward revisions and a return to positive GDP growth in 2Q12.

”Deputy BOE Governor, Paul Tucker, commented recently that the GDP numbers come with a ‘risk of mis-measurement’ because of construction data issues. He indicated that looking at the business surveys may provide a truer picture of the state of the UK economy than the official measure of GDP, which suggests he will not be overly concerned by a disappointing GDP reading. The fact Adam Posen has become far less negative on the UK’s prospects suggests he takes a similar view to Tucker.

“Consequently this is unlikely to significantly alter the outlook for policy with further QE probably not coming through in May.”


”I am not sure it has changed a lot of people’s minds about what the Bank (of England) is going to do next.

”The numbers are not too different from what they were expecting, all things being equal.

“They will probably pause (on QE) and despite this weak number, I think they will look through it and look at the UK economy as stagnating but not as weak as the headline numbers suggest, because part of that weakness was due to a fall in output in construction which was weak in Q1 but could probably bounce back stronger in Q2.”


”The UK’s back in recession. The 0.2 percent contraction in GDP in Q1 contrasted with expectations for a small gain and meant that output dropped by 0.5 percent over Q4 and Q1 together.

”Admittedly, the fall was driven by a sharp fall in construction output and there are question marks over the reliability of these numbers.

”That said, the drop in construction was smaller than anticipated and, even without this, output would have done no better than stagnate.

”The main disappointment was the meagre 0.1 percent rise in services output in Q1 - the surveys had pointed to services growth of 0.5 percent or more.

”Admittedly, the MPC indicated at its recent meeting that it will be putting greater weight on the more upbeat business surveys.

“But we would not dismiss today’s figures so readily. And even if the underlying picture is stronger than the official GDP figures show, there is no guarantee that the recent pick-up will continue. Indeed, we remain comfortable with our view that GDP will contract by about 0.5 percent this year.”


”Disappointing, we knew it’s possible we’d see a negative number, but not for the reason the GDP numbers have shown. In particular, that services have contributed the bulk of the disappointment is worrying.

”I think we are in good company. When the euro zone figures are released in a few weeks’ time, it will show that the UK has not fared worse than the likes of Germany and France.

”Also the UK was in the eye of the storm around the end of 2011-the beginning of 2012 when confidence was still recovering from the euro crisis and inflation was hurting consumer spending.

”Both of these headwinds have faded since then, so there should be better news for growth ahead. But that is obviously form a disappointing starting point.

“The Bank (of England) minutes stressed that underlying GDP growth was respectable. However, these figures show even more disappointing underlying growth than we feared. So the door is still open for more QED.”


”The underlying strength of the economy is probably much more robust than these data suggest. The danger is that these gloomy data deliver a fatal blow to the fragile revival of consumer and business confidence seen so far this year, harming the recovery and even sending the country back into a real recession.

“Not for the first time, the official data and survey data are sending conflicting signals... The disappointing GDP data also contrast with other official data, which indicate that retail sales grew 0.8 percent in the first three months of the year and the labor market to have shown some signs of improvement.”


Q1 2012 Q4 2011 Q1 FORECAST


Pct change q/q -0.2 -0.3 0.1

Pct change y/y UNH 0.5 0.3


- Britain enters technical recession, first double-dip recession since 1975

- Biggest quarterly fall in construction output since Q1 2009

- UK GDP 4.3 percent below peak in Q1 2008

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