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Recession, what recession?

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Profile photo of Gareth Shaw Gareth Shaw Which? Money Editor
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The UK’s economy has slipped into a ‘double-dip’ recession, the first for 37 years. But does this mean anything to you and me, and will it affect your spending and saving habits?

Yesterday, the Office for National Statistics (ONS) announced that Britain had gone back into recession, exactly three years after it had pulled itself out negative economic growth.

The economy had shrunk by 0.2% in the first quarter of 2012. And since it had also fallen in the previous quarter, by 0.3%, we’re now back in a recession (two consecutive quarters of negative growth technically equal a recession).

The ONS said that weak output from Britain’s production industries had a major factor in the fall, while a 3% reduction in construction was another contribution. Output, which includes retail and consumer spending, increased marginally by 0.1%.

Does the double-dip mean double trouble?

But, quite frankly, does this mean anything to you or me? Our sluggish economy has been dragging its feet for over a year now. Just look at the statistics from the end of 2010 to 2011:

  • Q4 2010, the economy fell by 0.5%
  • Q1 2011, the economy grew by 0.2%
  • Q2 2011, the economy fell by 0.1%
  • Q3 2011, the economy went up by 0.6%

The final quarter of 2011 saw the economy starting its decline towards today’s sorry state of affairs – the so-called double-dip.

None of the nation’s economic output indicates any form of recovery – some economists are even predicting that 2012 could be a lost year for the British economy. It all sounds like pretty bad news doesn’t it?

But is it any worse than what we’re currently facing? Savers still can’t get a decent rate of return on their nest-eggs, investors are being tossed about in bumpy stock markets, first-time buyers face rising rates, and all of us are dealing with high energy prices.

So, recession or no recession, we’re all still in a financial pickle. And if the economy keeps dancing around, it won’t make a blind bit of difference to our personal finances.

A more positive outlook

There may be some glimmers of hope. The ONS calculated our economic output using just 44% of the data available. In a few weeks time it will collect the rest and make a revision to the growth figure. And other companies, like the British Chamber of Commerce, think the outlook for the UK is actually far more positive than the latest figures suggest.

But whatever the case, is your confidence affected by the double-dip? Are you worried that things are going to get worse now we’re back in a recession?

Comments
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richard says:
26 April 2012

Sorry folks

The full cuts haven’t begun to bite the poor yet – and they are suffering already – It is a disaster worse than the last recession – I feel sorry for the really poor – The inept arrogant “government” needs to go fast. My income has shrunk for the last two years – I have what used to be called a fixed income – It is now fixed to shrink constantly until we change the “government”

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Phil says:
26 April 2012

What alternative would any new government have except to go back to spending huge sums of cash we don’t have?

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Em says:
27 April 2012

I’ve no idea how the commonly held notion that economic growth is sustainable and good, and recession is bad came about, but someone did a good job of brainwashing us all. The Earth is a finite resource. The amount of energy we receive from the Sun is constant. So there is a limit to the world’s economic activity.

Even if we haven’t reached it yet, and assuming attaining it would somehow make the world a more desirable place to live, no economist or politician is ever going to change that. Rather like a Monopoly board, once you have a hotel on every property from Old Kent Road to Mayfair, there’s nowhere to go and it’s “game over” for economic growth.

The only reason I can see why governments seek continual growth is that they run the economy like a giant Ponzi scheme. They need more money tomorrow than they have today, so they can pay off pensioners and service the interest on their ever-mounting debts.

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wavechange says:
27 April 2012

I think you are right, Em. I sometimes think that our aspirations about the economy are like trying to ensure that exam marks are consistently above average. 🙂

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Phil says:
27 April 2012

An expanding population needs economic growth to provide jobs and maintain or improve standards of living. Richard’s post demonstrates how economic stagnation or recession hurts.

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Monika says:
27 April 2012

Of course you are right. I thought that for some years now and unfortunately the only solution is to stabilise the population level now. How anybody can think otherwise is beyond me. I did my bit by having only one child thirty years ago and admire those people who don’t have any children at all.
Taking Britain as an example, the 3 million currently unemployed people can pick up the slack when the jobs become gradually vacant through retiring. This would have a double benefit of stopping paying the JSA etc and gaining taxes from their PAYE. This is simple maths, does nobody think the same?

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Bob says:
29 April 2012

The “New” Labour Government may have spent huge sums of cash but only when they had large sums coming into the Treasury coffers from taxation. Certainly a big proportion of the tax income was from banks and when they went down the tubes that income stopped but at least there was tax still coming in from the remaining workforce. It seems stupid to reduce the workforce and hence the tax income and add to welfare costs and expect the deficit to reduce.

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Phil says:
29 April 2012

In 1997 NL took over a budget that was practically in balance. By the end of their administration there was an annual budget deficit of £170 billion and that of course is just what is on balance sheet. It doesn’t include the hidden debt on PFI schemes.

Despite the cuts so far made the current administration hasn’t reduced the deficit by any significant amount.

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Bob says:
29 April 2012

I agree that the PFIs are a hidden debt just waiting to bite us all on the backside. I believe that the original PFIs were an earlier Tory government concept, just keeping costs off the books. Though of course Gordon Brown went a bit mad with them. So many hospital construction PFI costs hidden away but having now to be paid for are now adding to the NHS problems.

The annual deficit will not be reduced by less taxation income and more welfare outgoings. The city and bank income has much reduced and will not return quickly. It was OK to have a deficit in the days when anticipated tax income would cover it. Nobody, none of the politicians or economists saw the downfall of the banks coming and all supported the Boom and made no comment on the end of Boom and Bust put so provocatively by Gordon Brown.

It is worrying that the solution now relies on industry, which has been so depleted over the years, and exports, but of what? Armaments mainly, I imagine! So I see the economy getting much worse before it gets better.

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