Chancellor George Osborne: Under pressure? Photo credit: Paul Toeman
It’s official: Britain is back in recession. New figures from the Office of National Statistics (ONS) show that GDP shrank by 0.2 percent between January and March 2012. The UK has now had two consecutive quarters of negative growth, the definition of recession.
According to The Guardian, the news has shocked City analysts, who had expected a small return to growth. In the face of a double-dip recession, will the UK government back down from its economic austerity drive or stick to the plan?
Not time to panic. “These figures are slightly worse than many expected, but the fact that the UK is now technically back in recession should not detract from the underlying reality, which is very much as predicted,” wrote Stephanie Flanders at the BBC. According to Flanders, it has been clear for some time that the UK economy is “struggling to gain momentum”, and that recovery is likely to be weak.
Government under pressure. “This is a terrible blow for the coalition, which now stands accused of over-cooking austerity and thus killing off the tentative recovery that was under way when Labour left office almost two years ago,” wrote Larry Elliott on The Guardian’s Economics blog. Of course, said Elliott, the blame cannot be placed squarely with Chancellor George Osborne, as he inherited an economy with a huge deficit – but Labour will still seek to make political capital from the news. And the future looks uncertain: “Slow growth makes it harder for the government to hit its deficit-reduction targets and may well result in the UK having its credit-rating downgraded,” Elliott wrote.
Osborne must hold fast. “Stagnation in the UK economy is not the result of government policy as such, but is part of the adjustment process to the financial crisis,” argued Jeremy Warner in The Telegraph. Changing course now would be a mistake, whatever the clamouring from Labour: For the moment, the UK still has the confidence of markets; it’s being given the benefit of the doubt in that, rightly or wrongly, investors believe it can eventually get on top of its debts.
Hope for the future? “The main cause of the slump in the first quarter was a sharp dip in construction. But other parts of the economy including services and manufacturing remain in much better shape that it was reasonable to hope given the current state of the global economy,” pointed out Alex Brummer in The Daily Mail. Nevertheless, there are still difficult times ahead, due in part to the ongoing eurozone crisis and rising oil prices. According to Brummer, Osborne now needs to take the initiative and take advantage of Britain’s low borrowing costs by investing in infrastructure: “This government by sitting on its hands risks looking like a one trick pony with only cuts in borrowing on its agenda.”
