Return to recession – but for how long?
Britain is back in recession. The only question is whether the slump is limited to the minimum two consecutive quarters or extends into the summer of 2012.
The 0.2 per cent fall in gross domestic product in the final three months of 2011 is the first of the two quarters necessary to constitute a technical recession. But this is no technicality: there are no excuses about the weather or royal weddings or Japanese earthquakes. The decline in output was worse than expected, making it much less likely that a sudden rebound could put the UK economy back into positive territory in the opening months of 2012.
On the contrary, the trend suggests that there may be a third quarter of decline to come – and who knows what is beyond that horizon. The IMF has slashed its forecast for the year’s growth from 1.6 to 0.6 per cent, which suggests some positive months at the end of the year to offset the initial decline, but forecasts have been persistently lowered and could be cut again.
Britain is not alone, of course. Europe is heading for its third recession in a decade but the UK avoided the slump of 2012 that hit the Continent and US so it is not inevitable that we are pulled off course by other economies. While the IMF has reduced its forecast of US growth, that country is still set for an increase that would be welcome in the rest of the developed world.
However, the deeper that the eurozone sinks into recession, the fewer opportunities there are to trade with our neighbours and, despite not being a member of the single currency, UK exporters have received no currency advantage from a falling sterling.
George Osborne might not want to call it Plan B, but if it is too late to prevent Britain returning to recession, the UK chancellor does need to devise an economic policy that limits it to two quarters rather than allowing it to continue beyond the summer.
