UK Economic Problems Worsen

The Office of National Statistics (ONS) has just issued preliminary statistics for the performance of the UK economy in Q2 2012. The figures make grimmer reading than many had expected and show that the economy shrank by 0.7% over the quarter. This is the third successive quarter when the economy has contracted. It shrank by 0.4% in Q4 2011, fell into recession in Q1 2012 when it further contracted by 0.3%. Analysts including the British Chambers of Commerce had been anticipating a much milder decline or even stagnation, so the extent of the downturn has come as a surprise.

Many are saying that the UK is experiencing a double-dip recession, but this is not technically correct (although I appreciate that this won’t provide much comfort). A double-dip recession is defined as being two periods of recession separated by one or two quarters of growth. The UK returned to growth in Q4 2009 (on preliminary data or Q3 on revised information) and with the exception of two non-consecutive quarters of negative growth, has enjoyed two full years of growth. Mind you, the growth has been pretty anaemic, so you could be forgiven for not having noticed. The Guardian recently produced a table showing UK economic performance since 1948 (based on ONS data) which makes interesting reading.

The ONS has identified poor performance by the construction sector, the weather and an additional public holiday as factors to explain the poorer than expected performance. The data is preliminary and will be subject to revision as further data become available.

The inevitable political blame game follows predictable lines. The government is talking the data down and the opposition are seizing on them as a sign that government policy is bonkers: “They show the extent of the economic difficulties that we're grappling with, not least the situation right across the Eurozone where our neighbours are also really struggling. Clearly we've got to keep doing everything we can to get out of this difficult situation and provide the growth and jobs that our people and our economy needs," according to Prime Minister David Cameron. The contrarian view was put forward by shadow Chancellor Ed Balls: "If these figures don't make the chancellor wake up and change course, then I don't know what will. Thank goodness the Olympics will give our economy a much-needed shot in the arm. But this short-term boost is not enough - we need a plan B now to get the economy moving again and radical reforms to set Britain on a new course for jobs, growth and long-term prosperity."

Being in opposition during an economic crisis must be great fun since you can blame the government of the day for mistakes that you presided over. It must take some of the pain of losing an election away and is the same in all nations.