Official Government figures released on Wednesday show that the British economy is once again in recession following two consecutive quarters of negative growth.
Here is reaction to the news from a selection of financial and business experts…
Rupert Watson, Head of Asset Allocation, Skandia Investment Group:
"The UK is reported to have shrunk by 0.2% in the first quarter, pushing the UK into a recession, technically speaking. However, the GDP report is not consistent with most of the other data that has been released, which suggests the UK grew modestly at the start of this year. The UK's GDP reports are subject to significant revision, often a long time after the fact. When there is a difference between the early GDP reports and the business surveys, the business surveys usually turn out to be more accurate.
"Service sector activity was reported to have grown by only 0.1% in the first quarter, far weaker than the growth implied by other data. In addition, construction was reported to have fallen by 3%, despite the construction business confidence index rising to a fairly high level and the sector presumably boosted by the unseasonably warm weather in February and March.
"That the data is likely to be revised higher will not provide much comfort to the Government since by the time it does few will care. Indeed, for the Government the Q2 GDP is also likely to be weak, artificially deflated by about 0.5% because of the additional bank holiday to celebrate the Queen's Diamond Jubilee. However, Q3 is likely to be artificially inflated by a similar amount, suggesting a strong Q3 report, which will be released in late October. While most of us will hopefully enjoy a warm summer, the Chancellor may have to wait until the autumn."
Richard Coleman, Director of SME at Zurich Insurance:
"The ONS figures [this morning] alongside recent news that SME borrowing costs are at their highest level since late 2009, shows that it is now more vital than ever that the UK SME sector gets the assistance it needs.
"While access to finance and borrowing costs are an essential part of an SME growth lifecycle, this is only one part of the story. The UK SME sector, the finance sector and Government should look to diversify lending risk through other options of financial assistance such as SME bond issuance, seed and crowd sourced funding and private venture capital finance routes over the long term. But most of all, what is vital to small businesses is not just access to initiatives such as the Enterprise Capital Fund, but alongside this, access to the expertise and experience that can help SMEs to grow, expand into new areas and get the most out of financial assistance; ultimately building more sustainable and robust SME sector.
"Only by treating both access to finance and access to business expertise and advice as two halves of the same coin, will the British SME sector be able to truly grow and have greater resistance to future economic shockwaves. This is vital to the long term stability and growth of the UK economy and Britain's standing on the global economic stage. To reach this will require more than just a bank loan; it will require a mutual dialogue and understanding between financiers, businesses and government."
Tom Elliott, Global Strategist at J.P. Morgan Asset Management:
"For most people, the country has felt like it has been in recession since late 2008, so news of an official double dip will be no surprise.
"The causes? The same as for the euro zone: government austerity (the UK is engaged in the sharpest budget deficit reduction of any European country), a continuing contraction of bank lending to the household sector as the banks repair their balance sheets, and stubbornly high inflation that is eating into real incomes. The result? Rising unemployment, stagnant growth and weak consumer and business demand growth.
"For equity investors this suggests investing abroad, in those parts of the world where there is growth – for example in the US, and emerging markets – or in those UK and European companies that get most of their earnings from exports to the faster-growing economies.
"However, the brave and the long-term investor may want to look at UK-orientated companies that will outperform once growth returns – which it will do, eventually."
Patrick Foley, chief economist at Lloyds TSB:
"There are a number of reasons to be cautious when interpreting this data. [Today's] figure is a preliminary estimate, based on only 44% of actual data on the quarter; helping to explain why there tends to be significant revisions between preliminary and mature estimates. Secondly, a fall in GDP of 0.2% is inconsistent with survey evidence over the past three months which paints the picture of an economy building some modest momentum. In particular, the apparently dramatic (3%) fall in construction in the first quarter could be questioned.
"No matter what the data will eventually show for Q1, the unavoidable fact remains the underlying trend in the economy is flat. Official data for the second quarter is also likely to show a fall in output, reflecting the effect of the extra bank holiday in June. Growth is expected to pick up in the second half of the year, as inflation falls, boosting households' real spending power. However this remains dependent on the euro zone moving closer to a more complete solution and avoiding a deep recession."
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