UK back in recession after 0.2 pct Q1 contraction

LONDON – Britain's economy has fallen back into recession for the first time since 2009 after official figures Wednesday showed that it unexpectedly contracted during the first three months of the year.

The Office for National Statistics said economic output as measured by gross domestic product fell by 0.2 percent in the first three months of the year from the previous quarter. The first quarter drop follows the 0.3 percent decline recorded in the last quarter of 2011 and means Britain has returned to recession — two consecutive quarters of negative growth are required for a country to be officially deemed to be in recession.

The first quarter decline was unexpected — the consensus in the markets was that the British economy eked out growth, albeit of a modest 0.1 percent.

"The government and the Bank of England needed a sharp shock. They just got it," said Marcus Bullus, trading director at MB Capital in London.

Treasury chief George Osborne said the debt crisis afflicting the 17-country eurozone has impeded Britain's recovery, but he said he would stick to his "credible plan" to cut the country's budget deficit.

A more detailed look at the first quarter figures showed that a 0.1 percent in Britain's big services sector was not enough to offset a 3 percent in construction and a 0.4 percent in production industries including manufacturing and energy production.

Though there have been some concerns about the way construction output in particular is measured, Vicky Redwood, chief U.K. economist at Capital Economics said she would not dismiss the official data.

"Even if the underlying picture is stronger than the official GDP figures show, there is no guarantee that the recent pickup will continue," Redwood said. "Indeed, we remain comfortable with our view that GDP will contract by about 0.5 percent this year."

Her prediction contrasts with the government's expectation for 0.8 percent growth this year.

Other analysts pointed to survey data which indicated that the economy was more robust than the official GDP figure shows. Wednesday's figures are subject to revision.

"Along with the Bank of England and many other analysts, we are hugely skeptical about the first-quarter GDP data showing contraction of 0.2 percent quarter-on-quarter," said Howard Archer, chief European economist at IHS Global Insight.

"The economy is undeniably still in a hard place, but the evidence overall suggests that it managed to achieve modest expansion in the first quarter," Archer said.

Britain has experienced a fitful recovery since a deep, 18-month recession ended in the last quarter of 2009 — last year, growth was negative in two of the four quarter.

While the economy is struggling, inflation, at 3.5 percent, remains stubbornly above the Bank of England's 2 percent target, though it has come down from a peak of 5.2 percent.

And unemployment remains near its highest level since the mid 1990s, even though the rate fell in the three months ending in February to 8.3 percent from 8.4 percent.