Double dip wiped away but crash was even larger than expected

THE BRITISH economy did not enter a second recession in 2011-12, the Office for National Statistics (ONS) confirmed yesterday, with an upward revision to its estimate for the country’s economic growth.

The ONS had previously suggested that the economy shrank by 0.1 per cent between the last quarter of 2011 and the first quarter of 2012, but has now decided that growth was flat.

Chris Williamson, chief economist at Markit, commented: “The revisions are yet another reminder that official data need to be treated with a huge pinch of salt, not only when first released but also for a number of years after first publication, if policy errors are to be avoided”.

However, statisticians also altered their judgement of how severely the financial crisis impacted the UK. The recession that began in 2008 was more acute, shrinking GDP by 7.2 per cent, rather than 6.3 per cent.

This means that the UK saw one of the worst declines among large advanced nations, and that the economy is still 3.9 per cent smaller than it was at its pre-crisis peak, extending the amount of time it will take the country to return to its previous high. The ONS had thought that the UK was only 2.6 per cent below the GDP level seen in early 2008.

The households’ saving ratio, which estimates the amount that British families are saving in each month’s pay, is at its weakest point since the first three months of 2009. In the first quarter of this year, households have only saved 4.2 per cent of their incoming wages.

Real household disposable income also declined in the first quarter, falling by 1.7 per cent. The drop, 1.1 percentage points of which was due to falling wages, and 0.6 percentage points to inflation, was the largest for a single quarter since 1987. The equivalent figure from the first three months of 2012 was flat. Between 2011 and 2012, there was a rise of 1.4 per cent in the same measure of income.

David Lebovitz, global market strategist at JP Morgan, said: “Although the UK economy is beginning to show some signs of strength, achieving stronger growth will be an uphill battle. Inflation continues to outpace wage growth, which, coupled with government spending cuts, will drag on economic growth”.