THE UK is now in recession with January to March set to mark a second quarter of economic contraction for the UK, the influential OECD group predicted yesterday, as a survey out today revealed consumer confidence fell again in March.
However other economists cast doubt on the OECD’s gloomy claim, pointing to healthy business survey data in recent months and the strong service sector data published yesterday by the Office for National Statistics (ONS).
The OECD believes UK economic output shrank 0.1 per cent in the first quarter of 2012, following the 0.3 per cent decline in the final three months of 2012, taking the country into a technical recession.
It also warned the global outlook remains fragile, with the French and Italian economies also expected to contract in the first quarter.
Consumer confidence in the UK deteriorated further in March, a study from GfK revealed today, as respondents became increasingly pessimistic about the general economic outlook and their personal finances.
However, services output rose 0.2 per cent higher in January, according to the ONS, leading economists to question the OECD’s forecast. As the sector accounts for 76 per cent of the economy, even modest growth could push GDP into positive territory.
“The OECD’s forecast for the UK looks unnecessarily gloomy,” said economist Andrew Goodwin from the Ernst and Young Item Club.
“Having reached a low point in the autumn, most of the business surveys and official monthly series data have picked up nicely, culminating in this morning’s index of services. The data appears to be consistent with GDP growth of 0.3 to 0.4 per cent in the first quarter, a long way from the recession forecast by the OECD.”
Chancellor George Osborne’s economic strategy has come under fire from his Labour opposition, who argue he is cutting spending and raising taxes too far and too fast.
However the Treasury also pointed to healthy survey data and argued independent forecasters like Goldman Sachs and the Office for Budget Responsibility expect the economy to grow again in the first three months of the year.