UK recession is worse than was first thought
THE ECONOMY contracted more sharply that first thought in the opening quarter of the year, official figures showed yesterday, increasing pressure on the government to change course in an effort to boost growth.
The updated GDP estimates revealed the economy contracted 0.3 per cent in the first quarter, not the 0.2 per cent shown in the Office for National Statistics’ (ONS) initial estimate.
That leaves the economy 0.1 per cent smaller than it was in the first quarter of 2011.
Opposition leaders called for tax cuts and spending increases to stimulate demand and raise employment.
However, economists warned the figures showed government spending increased 1.6 per cent in the quarter, and said the recession is due to the private sector resolving long-term problems. “After more than a decade of dependency on private borrowing and public spending, huge swathes of the economy are incapable of growth,” said Tullett Prebon’s Tim Morgan.
Construction output dropped 4.8 per cent in the quarter, more than the three per cent first published, while a trade deficit of £4.4bn shaved another 0.1 per cent off total GDP.
Services growth remained unchanged overall at 0.1 per cent, although finance and insurance activity dropped 0.8 per cent. Manufacturing output was flat.
The disappointing data did not dent demand for UK bonds however. The yield on benchmark 10-year UK bonds dipped as low as 1.738 per cent during trading yesterday, before rising to 1.77 per cent as investors continued to shun debt from the troubled Eurozone countries. Yields on 10-year German gilts also fell to a record low of 1.35 per cent, before rising to 1.39 per cent.