27th Jan 12
UK heading for double-dip recession
by Harry Oldfield
Breaking the bank: BoE expects more job losses this year
Breaking the bank: BoE expects more job losses this year
Britain is on course for its first double-dip recession since 1975 after the economy contracted in the last quarter of 2011 and analysts warned of a renewed threat to employment.
The country shrank by 0.2 per cent during the three months to December, more than the 0.1 per cent which was expected, revealed Office for National Statistics (ONS) figures, largely as a result of a sharp decline in manufacturing. The new crisis in the UK’s factories came as a major blow to the government, which had hoped the sector could help Britain’s industry recover.
The economy’s worse-than-anticipated performance, which put last year’s annual growth in line with expectations at 0.9 per cent, arrived as the Bank of England announced that job cuts are planned in the private sector – undermining hopes that it may be able to make up for the roughly 110,000 redundancies expected in the public sector in 2012.
The Bank’s business conditions summary said that having already reduced non-labour costs as much as they could during the recession, a number of business service contacts are now of the belief that they would be forced to cut staff numbers.
Bankers, accountants, hauliers, lawyers and retailers are expected to be among the worst hit. Even manufacturers, which have experienced strong growth, reported that they were taking a break from further recruitment, revealed the Bank. Unemployment currently stands at 2.68 million, or 8.4 per cent – a 17-year high.
Confirmation that the UK’s economy is contracting for the first time since the last quarter of 2010, when severe weather conditions played a major part in it shrinking by 0.5 per cent, sparked a number of warnings about a second recession.
Deatsche Bank’s UK chief economist George Buckley pointed out that it would be the first double-dip recession for 37 years. He explained that the country faces the possibility of seven lost years, as the economy remains 3.8 per cent below its peak in early 2008 and the recovery is in line to be the slowest in more than 100 years. Mr Buckley added that if the recovery maintains the same pace, it would be the end of 2014 until the GDP hits its peak again.
Ed Balls, the shadow chancellor, described the collapse in growth as “a damning indictment of Chancellor George Osborne’s failed economic plan”. Mr Osborne has refused to alter his austerity plan, however, blaming the problems within the eurozone for the woes.
The chancellor said that the figures are disappointing but do not come entirely unexpected. He insisted that the plan is the right one, saying that the country must stick to it but also needs to accept that the UK’s problems have been worsened as a result of the problems in the eurozone.
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