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UK in recession: Experts doubt ONS figures

Preliminary figures from the Office for National Statistics show the economy contracted over the first quarter of the year, placing the country back into recession.

However, a number of experts have expressed scepticism and expect later revisions to be more positive.

The UK economy shrank by 0.2 per cent between January and March 2012, following on from the 0.3 per cent decline in the final quarter of 2011. Technical recession is defined as two consecutive quarters of contraction.

Schroders European economist Azad Zangana, says: “The double dip in recession comes as no surprise to us. We have been forecasting another recession since last November when the eurozone crisis intensified.

“Indeed, we are forecasting a further falls in GDP for the second quarter which will be caused by the extra special bank holiday to celebrate the Diamond Jubilee.”

Cheviot Asset Management partner David Miller points out that the UK is not immune to slowing growth on the global stage but notes the contraction is not as severe as that being seen in the eurozone.

“Investors have been looking to the GDP figures coming up this week as their fear is that should numbers be poor, we could be in for a repeat of July and August last year when the markets sold off,” he warns. (article continues below)

But some commentators dispute the preliminary figures and suggest future revisions will show the UK economy managed to achieve a degree of growth over the three months.

IHS Global Insight chief UK and European economist Howard Archer says: “Along with the Bank of England and many other analysts, we are hugely sceptical about the first-quarter GDP data showing contraction of 0.2 per cent quarter-on-quarter.

“The economy is undeniably still in a hard place, but the evidence overall suggests that it managed to achieve modest expansion in the first quarter.”

Rathbone Unit Trust Management chief investment officer Julian Chillingworth says: “We are not dismissing the figures but will await the revision. On that basis, there is every possibility that underlying data are stronger than suggested.

“At this stage, there are other numbers which we would place more emphasis on such as strong corporate profits, which seem to be telling a different story; hence the disconnect between the UK market and the GDP figures.”


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