ONS - UK economy declined by 6.4 per cent from the peak
The UK economy was more reliant on government spending in the first quarter, and the recession deeper than previously thought, according to official data published on Monday.
The economy declined by 6.4 per cent from the peak in output to the trough, the Office of National Statistics reported on Monday, a sharper drop than the 6.2 per cent decline previously estimated and the worst recession in postwar British history.
The sharp contraction in 2008-9 compares with a decline of 2.5 per cent in the 1990s recession and 6 per cent in the early 1980s recession.
Evidence of a deeper recession came as the ONS revised its estimates for the performance of the economy in the first quarter. It left its earlier estimate for first-quarter growth of 0.3 per cent unchanged.
But it found that general government consumption, which includes departmental spending but not capital spending or benefits spending, had risen by 1.5 per cent rather than the 0.5 per cent initially calculated.
Meanwhile, the household savings ratio fell to 6.9 per cent from 7.2 per cent, but this was not enough to stop household consumption from falling by 0.1 per cent.
The greater reliance of the economy on government spending, and weakness of consumption in spite of falling savings underline the fragility of the recovery as the coalition government sets about cutting the deficit.
“With fiscal austerity being stepped up and consumer spending growth still falling, there is significant reason for concern over the UK’s growth prospects,” said James Knightley, economist at ING.
Exports were also revised down to show a 1.7 per cent drop in the quarter, the worst performance since the first quarter of last year, while imports grew by 1.6 per cent. Hopes for a strong recovery partly rest upon the weak pound making British goods more competitive for domestic purchases and for sales abroad, but in recent quarters a widening trade deficit has been detracting from growth.
“We still doubt that the economy is in a good position to withstand the fiscal squeeze,” said Vicky Redwood of Capital Economics.
The first quarter was hit by unusually cold weather and the rise of VAT back to 17.5 per cent. The second quarter appears to have seen a bounce back from that dip, but there are fears that growth is set to slow down as government stimulus is reduced and the repercussions of European economies weakened by fears of fiscal crisis hit the UK.
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