UK re-enters recession after Q1 contraction
City Index April 25, 2012 2:40 PM
<p>The UK re-entered into a technical recession after a preliminary reading of UK GDP for the first quarter by the Office of National Statistics showed […]</p>
The UK re-entered into a technical recession after a preliminary reading of UK GDP for the first quarter by the Office of National Statistics showed a contraction of 0.2%, meaning two consecutive quarters of negative growth. Most economists had forecast a small growth of 0.1%. The UK saw a contraction of 0.3% in the final quarter of last year.
This is bad news for George Osbourne and David Cameron, particularly given the revelations of the Leveson enquiry, but more so it’s concerning that the UK failed to avoid a double dip recession that many had previously forecast it would avoid. That said, we must remember that this is a preliminary reading and first readings have been shown to change somewhat in subsequent revisions historically. As such, the negative reading is written with a pencil, rather than ink and remains subject to change.Nevertheless, this is still a bad reading.
Clearly the construction output has had an overriding effect in UK growth, with output slumping 3% on the quarter, which is the biggest quarterly fall in construction output since the first quarter of 2009.
Whilst slow growth is a huge issue now in the era of austerity for the Chancellor, one does not feel that the negative Q1 reading is too huge a shock to most investors or the markets. We already had Bank of England member David Miles admit that a negative reading would not be a surprise to him last night and the UK construction figures since the start of the year has long cast a dark cloud over the preliminary GDP expectations as a result.
Indeed, whilst we did see the pound sterling and the FTSE lose ground quickly in the immediate aftermath of the GDP release, the falls were not necessary huge, and this perhaps confirms that the double dip recession the figures from the ONS pertains the UK is now in is more likely to dominate the news headlines than dramatically change investor sentiment in the near term.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.