April 25th, 2012
05:46 PM GMT
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London (CNN) – As spring-time rain flooded London's streets and uncomfortable soundbites emerged from the Leveson inquiry, the UK government faced further misery: The UK is back in recession.

The revelation - a psychological blow, even if the figures are later revised up - will increase pressure on David Cameron’s government, already under pressure from the probe into its relationship with Rupert Murdoch’s media empire.

The “double-dip" recession is a loose phrase, but this slump is close enough to the 2008/2009 contraction to warrant the dreaded term. The last time the UK was in a double-dip recession was in the 1970s.

The UK, like its European peers, is following a path of austerity as it seeks to return to economic health.

Finance minister George Osborne said the news was “very disappointing,” but that the government wanted to ensure “we don’t deliberately add to borrowing, don’t deliberately spend more and make a difficult situation even worse.”

So, the policy of tightening the purse strings continues. But the "r" word ensures the question of how best to promote growth is put firmly back on the table.

Obama's future tied to Europe

In the UK, focus is on the Bank of England’s Monetary Policy Committee (MPC) and whether it will return to stimulus measures. An immediate move seems unlikely, with the bank’s April minutes noting the falls in construction output were “perplexing” and the committee was “minded not to place much weight on them.” Further, it noted “the recovery in activity in the global economy looked to be proceeding broadly as expected.”

Analysts also questioned Wednesday’s figures, telling CNN they expect the routinely revised figures would show the economy flat-lining rather than going backwards.

Howard Archer, UK economist at IHS Global Insight, said the recorded 3% drop in construction output which sliced 0.2% off the GDP data was “highly questionable,” and at odds with statistical evidence elsewhere.

Olympic money helps with London's unemployed

But the UK economy is fragile, and Wednesday’s data will put the spotlight on the MPC’s next meeting, in a fortnight. Poor economic between now and then could shift thinking toward stimulus, according to Deutsche Bank’s George Buckley. “If [such figures] end up echoing the recent moves in this week’s euro survey then we cannot rule out the risk of another round of asset purchases,” he wrote in a note.

Thus the austerity versus stimulus debate continues. In mainland Europe, austerity is delivering little success. Greece, which has obediently made cuts in return for aid, this week said economic contraction would be 5% for the year.

That, of course, creates a credit market boost for the UK: Its economy is seen as safe haven, ensuring its bond yields, or borrowing costs, remain low.

soundoff (8 Responses)
  1. raj_mumbai

    Oh please, UK is a disaster, their economy is finished, their politics failed, and now they are looking to come to India to invest, well you know what?
    we do not want you here! you looted and ruled this country for too long, now that the biggest empire in history is dead you want to come back! get offf my land

    April 27, 2012 at 8:42 am |
  2. Matt C

    @Raj mumbai: don't be a moron, all countries in the developed world want to invest in the emerging markets not just the UK. Don't be under the illusion that you are some kind of superpower, and that the UK(and the west for that matter) is finished for good, most of your country is still an absolute sh**hole.

    April 27, 2012 at 9:08 pm |
  3. eman

    this site is very good to learn english for free


    April 27, 2012 at 11:21 pm |
  4. KingMob1

    Looted? Britain created India and invested millions in its infrastructure during the Raj, India and Britian have a lot in common and could work together to their mutual benefit, if they can put the pasted behind them.

    April 29, 2012 at 12:16 pm |
  5. KingMob1

    eman – yes it probably is but dont use stuff in like 'sh**hole' in polite conversation.

    April 29, 2012 at 12:19 pm |
  6. medhat

    this site is very good to learn english for free

    May 3, 2012 at 3:20 am |
  7. JCthatsme

    UK Conservative government is pandering to the rich again, they CUT the tax rates from 50% to 40% for those that earn more than £60000, how is this austerity

    May 10, 2012 at 8:56 pm |
  8. icons designs

    This rather good phrase is necessary nust by the way


    September 22, 2012 at 5:22 am |

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