It’s official. Britain has had two successive quarters of negative growth and so is in a double-dip recession.
The dip in activity is small but massively significant. With the government up to its eyeballs in the phone-hacking scandal and with local elections looming, the timing could hardly have been worse for David Cameron and George Osborne.
The chancellor was putting a brave face on it, coming on all Margaret Thatcher with his “this government’s not for turning” line. Yet this is a terrible blow for the coalition, which now stands accused of over-cooking austerity and thus killing off the tentative recovery that was under way when Labour left office almost two years ago.
There is more to it than that, clearly. Osborne inherited an economy with deep structural weaknesses and the biggest peacetime budget deficit in the UK’s history.
Even so Labour will seize the moment with gusto. The shadow chancellor, Ed Balls, has been arguing consistently since he got the job 15 months ago that the economy was too weak to cope with the mix of tax increases and spending cuts that Osborne served up. Even though the bulk of the spending restraint has yet to take place, that now looks like a reasonable assessment.
Slow growth makes it harder for the government to hit its deficit-reduction targets and may well result in the UK having its credit-rating downgraded.
That would be a bitter blow for Osborne, since his entire economic and political strategy has relied on the UK remaining in the dwindling club of nations with a prized AAA rating.
Double-dip recessions are extremely rare in the UK. It is quite common for the economy to falter during a recovery with one quarter of negative activity but you have to go back to the mid-1970s, when the first oil shock of 1973-74 was followed by stagflation in 1975, to find a genuine double-dip downturn.
In the past, even during the 1930s, recoveries have been well under way by now. This time, despite the massive stimulus that has been chucked at it, four years into the deepest depression of the post-war era Britain is going backwards.
Output is more than 4% below its peak in early 2008, living standards are falling and there is no sign whatsoever of the much-heralded rebalancing of the economy.
City analysts, once again caught on the hop by the dismal growth figures, will no doubt make the point that the main reason behind the 0.2% contraction in the first quarter was the performance of the construction sector, where the figures are notoriously prone to revision.
It could well be that fresh data over the coming months will see growth revised up and no double-dip recession after all. But this GDP announcement will be big news; any positive changes later will not be. The damage has been done.
From the Guardian