As I’m sure you’ll all have seen, the UK is in a double dip recession. The 0.2% contraction in GDP in Q1 2012 was the second consecutive quarter of negative GDP growth, meeting the technical definition of a recession.
A caveat: these are initial estimates only. The ONS’ first estimate of GDP growth is made from only about 40% of relevant data and so might be revised up or down in later publications. Some economists were surprised at these figures and expect it to be revised upwards.
The overall picture, though, is not one of sharp decline but of a completely flat economy. The level of real UK GDP is the same in Q1 2012 as in Q1 2011. We don’t expect this to change in the next few months because there are simply very few drivers of growth. Consumer and business confidence is weak. Inflation is still running higher than the rate of earnings growth, underlining the need for inflation to fall to 2% or below. There are some positives: unemployment has fallen recently and the UK is exporting more to emerging markets.
Meanwhile the Eurozone is in no position to drag the UK out of growth. Half of British exports go to the EU so their fortunes are closely tied to the UK’s. To give you an idea of how closely the UK’s fortunes are tied to the continent, UK exports to Belgium alone equate to 1.7% of the UK’s total economic output.
The economy needs some positive surprises - such as a rapid fall in inflation or good news from abroad.