LONDON May 24 Britain fell deeper into
recession than initially thought in the first quarter of 2012
due to a slump in construction output, raising the likelihood
that the Bank of England will opt to inject more stimulus to
protect the economy from the euro zone debt crisis.
Britain is in its second recession since the 2007-2008
financial crisis, and the prospects for a recovery are cloudy as
leaders in the euro zone, Britain's biggest trading partner, are
still far from resolving their debt woes.
The BoE's Monetary Policy Committee (MPC) has indicated it
is ready to pump more money into the economy, having paused its
quantitative easing programme at 325 billion pounds this month,
amid growing worries about a break-up of the currency union.
"The economy is not recovering properly and with the
uncertainty over Europe hanging over the outlook as well, our
suspicion is the MPC will sanction further QE at some point
later on this year," said Philip Shaw, economist at Investec.
The Office for National Statistics said the economy shrank
by 0.3 percent in the first quarter of this year, more than an
initial estimate of a 0.2 percent decline, and confounding
analysts' forecasts for an unchanged reading.
Year-on-year, the economy contracted by 0.1 percent, the
first annual decline since Q4 2009.
The figures will make uncomfortable reading for British
finance minister George Osborne, who has vowed to press ahead
with harsh austerity measures to curb Britain's debts and has
argued that the private sector can fill the gap in public
Britain's economy has expanded by just 0.3 percent since the
Conservative/Liberal Democrat government came to power in 2010,
and Thursday's figures showed government spending made the
biggest contribution to the economy.
The ONS said the downward revision to the Q1 data was the
result of a sharp drop in construction output, which fell by 4.8
percent on the quarter, its steepest decline since the first
quarter of 2009.
New data on expenditures suggested the decline in overall
GDP would have been steeper were it not for a 1.6 percent
quarterly rise in government spending, which was the biggest
increase in four years and contributed 0.4 percentage points to
Household spending, meanwhile, rose by only 0.1 percent, its
smallest rise in six months, suggesting that a consumer-led
recovery is not on the cards.
The figures showed that exports also suffered. The trade
deficit increased to 4.4 billion pounds, with net trade shaving
off 0.1 percentage point from GDP.
But separate preliminary data showed business investment
posted its biggest quarterly rise in almost a year, and its
largest annual increase in almost seven years.
The International Monetary Fund this week warned about the
risks facing Britain and urged policymakers to boost growth by
whatever means necessary.
It suggested the BoE could cut rates further from their
record-low 0.5 percent and start buying private-sector assets.
And it recommended that the government should find money to
invest in infrastructure and do more to boost the flow of credit
to companies. The IMF said Britain may even need to consider a
temporary tax cut to bolster demand.
Although the BoE is concerned that official data might be
understating the strength of the economy, recent surveys have
indicated that activity is tailing off, while an extra public
holiday in June is also likely to depress growth in the second
In a further sign of weakness in the economy, figures
published by the British Bankers' Association showed net
mortgage lending rose by 715 million pounds in April, around
half the increase recorded a year ago, though the number of
mortgage approvals was up slightly on the year.