UK sinking back into recession
COMMENTARY The U.S. economy is slowly crawling out of its hole, as the Federal Reserve affirmed yesterday. But at least it's not sliding back into the pit, like the U.K.
New economic data shows that Britain's GDP fell 0.2 percent in the fourth quarter of 2011, down from growth of 0.6 percent in the previous period. That represents the U.K.'s first economic contraction since the final quarter of 2010. In short, the country is sliding back into recession, with economists expecting another dip in the first quarter of this year. As one expert tells the Wall Street Journal:
"Our bet is that the U.K. is now back in recession and that the economy will continue to contract for most of this year," said Vicky Redwood, chief U.K. economist at Capital Economics.
The following chart, released this week by the U.K.'s Office of National statistics, illustrates that looming double-dip, with growth slowing across the economy:
Several factors are hurting the British economy: slowing manufacturing, rising unemployment, stagnant wage growth, decreasing construction activity, and dimming consumer confidence -- and, of course, Europe's raging debt crisis.
The decline in factory output in the U.K. owes directly to the ongoing troubles in the eurozone. Roughly 40 percent of U.K. exports head to the Continent, but much of the region's consumers are in no position to shop. The IMF said this week that the eurozone is "deeply in the danger zone" and predicted that the 17-member monetary bloc would fall into a "mild" recession this year.
Despite this deterioration, the U.K. for now is sticking with its policy of slashing government spending and raising taxes -- the sort of "austerity" measures that most economists think can snuff out a fragile economic recovery. We'll see how long the Brits keep their heads in the sand.
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