Double-Dip: UK Slides Back into Recession

On Wednesday (April 25th), the Office for National Statistics (ONS) published its preliminary data about the UK's gross domestic product (GDP) for the first quarter of the year - and it didn't make for pleasant reading...

On Wednesday (April 25th), the Office for National Statistics (ONS) published its preliminary data about the UK's gross domestic product (GDP) for the first quarter of the year - and it didn't make for pleasant reading. According to initial estimates, GDP growth slowed by 0.2 per cent in the three months from January to March, making this the second consecutive quarter of decline and plunging the UK back into recession.

The construction industry experienced the biggest fall in activity, down by three per cent, while production slipped by 0.4 per cent. The service sector was the only one to remain in positive territory, posting 0.1 per cent growth. Azad Zangana, European economist at Schroders, asserted the data for the service industry is the biggest disappointment, as analysts anticipated growth of around 0.5 per cent during the first quarter of 2012. By contrast, he pointed out the numbers posted by the construction sector were "much more reasonable than had been feared by economists".

While many commentators have been keen to point out this is only preliminary data - which is likely to be adjusted - there is no doubt the UK's economy is far from a picture of health. Chief economist at Lloyds TSB Patrick Foley summed up the situation, stating: "No matter what the data will eventually show for Q1, the unavoidable fact remains the underlying trend in the economy is flat."

While Mr Foley believes there will be an improvement during the second half of 2012, he acknowledged this will be dependant, in part, on bigger steps towards resolution of the eurozone crisis. This is necessary in order to prevent the UK and other European nations experiencing "a deep recession", he concluded. It is not only the issues on continental Europe that are weighing on the country's economy, though. Charles Luke, manager at Murray Income Trust, cited the wide-reaching austerity measures and debt problems in many developed nations as other factors that will mean "the economic environment is likely to be challenging for some time to come".

The property market has already been hit by the uncertain economic climate, with Colliers International pointing out earlier this month that real estate investment transactions have been restricted as many investors take a step back, assess the situation and focus on core assets. A lack of debt finance is also affecting the level of acquisitions, the firm added. Research published recently by IPD revealed unlisted property assets in the UK generated returns of 0.7 per cent in the first three months of 2012, their lowest level since the third quarter of 2009, when the sector showed the first signs of recovery.

It is not only investors who are going to be affected by the return to a recession. Following the release of the ONS data, market analyst at Quick Move Now Donna Houguez stated the worsening of the UK's economic situation is likely to result in fewer lenders offering mortgages to home buyers. She also predicted property values will fall further this year due to the pessimistic outlook.

However, the recent Halifax Housing Market Tracker found more Brits believe house prices will rise, rather than fall, during 2012. The organisation noted the March figures were the most positive it had recorded since it began measuring sentiment towards the UK's residential property market a year ago. However, almost half (45 per cent) of those surveyed cited the large deposits required for house purchases as one of the biggest obstacles on the market, while 25 per cent stated a lack of suitable finance is a further problem. The greatest concern was job security - with 61 per cent of those questioned stating this is a worry. The news that the UK's economy has entered a double-dip recession is unlikely to alleviate these fears in the short term.

- Monday 30 April 2012

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