UK recession was deeper than thought
BRITAIN suffered a far deeper contraction than had previously been thought and the health of the economy was far more reliant on public spending in the first three months of 2010, official figures from the Office for National Statistics (ONS) showed yesterday.
The data, which had been delayed by nearly two weeks, due to “potential errors” showed that the economy shrank by 6.4 per cent from peak to trough, sharper than the 6.2 per cent previously estimated. This was the deepest recession in Britain’s post-war history and was worse than the early 1980s, when output contracted by six per cent.
However, the ONS confirmed that the economy continued to recover, albeit weakly in the first quarter of 2010. Output grew by 0.3 per cent compared to the last three months of 2009, held back by poor weather.
The detail of the data showed that much of the improvement in the first quarter was as a result of public spending. Government consumption is now thought to have surged by 1.5 per cent on the quarter, compared to a previous estimate of a more subdued 0.5 per cent increase. On the investment side, capital expenditure by general government surged by 6.5 per cent.
“The forthcoming era of austerity will soon consign increases of these magnitudes to the annals of history, and the key is whether private sector demand will be able to sustain the economy looking ahead,” said Investec’s Philip Shaw.
Equally worrying was the downward revision to net exports. Previously estimated to be flat on the quarter, the updated figures now showed a 1.7 per cent decline, the worst performance since the first quarter of 2009 and highlights the fact that sterling’s depreciation has failed to boost UK economic activity.
Although the data showed a fall in the household savings ratio to 6.9 per cent versus 7.2 per cent in the fourth quarter of 2009, economists warned that this would have to fall further for the UK to record any decent growth over the next year or so. ING’s James Knightley said: “With austerity set to intensify over the next few years, the savings rate may have to push close to zero if the economy is to avoid slipping back into recession.”