25 Jul 2012

Britain hit by longest double-dip recession for 50 years

Britain’s recession continues for a third quarter, with growth declining dramatically by 0.7 per cent from April to June. But Chancellor George Osborne tells Channel 4 News it “could be a lot worse”.

Growth was negative in the last three months of 2011 and the first quarter of 2012, and the latest estimate from the Office for National Statistics shows this trend has not been reversed.

The 0.7 per cent fall was far worse than economists had expected and is being blamed on the extra bank holiday during the Diamond Jubilee and record rainfall.

The British economy has not grown for nine months. Following the previous downturn in 2008-09, the country is now in the midst of the longest double-dip recession for 50 years, and the government will come under further pressure to stimulate growth.


The government’s austerity measures to tackle the deficit – the difference between what is raised in taxes and the cost of public services – have been blamed by some for prolonging the downturn.

But George Osborne told Channel 4 News that his emphasis on deficit reduction meant Britain retained the confidence of the money markets, which allowed Britain to borrow cheaply.

“We do borrow money at very low rates, and if you look across the channel, at the situation that Spain finds itself in, you can see that as difficult as Britain’s economic problems are, they could be a lot worse if we didn’t command the confidence of Britain’s ability to pay its way in the world.”

Mr Osborne summed up his strategy as “a relentless focus on improving the economy, in dealing with the deficit and making sure that Britain can live within its means”.

As difficult as Britain’s economic problems are, they could be a lot worse if we didn’t command the confidence of Britain’s ability to pay its way in the world. Chancellor George Osborne

Asked if he should have explained to the public that his focus on cutting the deficit could result in the economy shrinking, he said: “I think the British public understood that one of the big probems the economy had was a very high budget deficit and dealing with that was never going to be easy. But we are dealing with it, the deficit has come down by 25 per cent, so we’re making progress on that front.”

Mr Osborne said the govermnment was spending more on capital investment than the previous Labour administration, and that roads and rail were better funded “than in the boom years”.

The chancellor admitted that when the coalition government was formed in 2010, “we expected more growth than we’ve had”. But he said private sector jobs were being created, inflation was falling and efforts were being made to boost infrastructure spending and encourage lending.


Alan Clarke, an economist at Scotiabank, said: “This is a disaster for UK growth … on average for the year it’s looking very unlikely that we’ll be on the right side of zero growth; more likely we’ll be contracting.”

Brian Hilliard, from SocGen, said: “This is amazingly weak. That thing that surprised me more than anything was the size of the fall in manufacturing. It’s clear it’s hostile, but not as hostile as this.”

Growth declined by 0.3 per cent in the first three months of this year and 0.4 per cent in the final quarter of 2011.

Last week, the International Monetary Fund (IMF) lowered its growth forecast for Britain in 2012 from 0.8 per cent to 0.2 per cent, below France and Germany, but ahead of Spain and Italy.

The IMF expects growth of 1.4 per cent next year, down from its previous forecast of 2 per cent.

Estimates for April to June 2012 varied, from minus 0.2 per cent (National Institute of Economic and Social Research and Commerzbank) to minus 0.4 per cent (Investec).


But the impact of the Olympics may lift growth in the third quarter of 2012. Howard Archer, chief UK and European economist at IHS Global Insight, who forecast a 0.3 per cent decline in gross domestic product in the second quarter, expects the economy to bounce back, with 0.6 per cent growth between July and September.

Measures announced by the government and the Bank of England to stimulate growth include: an extra £50bn of quantitative easing, cheap loans for banks, to be passed on to households and businesses, and new infrastructure projects underwritten by the taxpayer.