UK sinking back into recession

The U.K.'s GDP shrank 0.2 percent in the final quarter of 2011, putting the country on the brink of recession. Credit: MorgueFile

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:

The U.K.'s GDP shrank 0.2 percent in the final quarter of 2011, putting the country on the brink of recession.
Office of National Statistics

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. 

What the U.S. can learn from the U.K.: Don't be stupid
Grand illusion: Why Europe should question the wisdom of "austerity"
Austerity Kool-Aid: The U.S. is repeating Europe's mistakes

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.

  • Alain Sherter On Twitter»

    Alain Sherter is an award-winning business journalist who has written for The Deal, MarketWatch and Thomson Financial Media.

Comments

Market Data

Market News

Stock Watchlist