Double-dip recession has arrived, say economists

BRITAIN’S economy is in the grip of its first double-dip recession for 35 years, City forecasters believe.

Official growth numbers are expected to show this week that the economy shrunk by 0.1 per cent in the final three months of last year. The same experts predict a similar contraction between January and March of this year.

This would mean Britain would have suffered consecutive quarters of negative growth — the technical definition of a recession. A double-dip recession refers to one followed by a short-lived recovery, then another recession.

Economists say Britain’s recovery has been hamstrung by the eurozone crisis, which has smothered demand for British exports and fractured business confidence at a time when consumer and government spending is weak.

Alan Clarke, an economist at Scotia Capital, said: “Official figures show industrial production and the construc- tion sector fell during much of the quarter — it would take a staggering bounce back to avoid a negative number. That doesn’t seem at all likely.

“Along with many forecasters we expect a short and slight double-dip recession. It will pose a presentation challenge for the Government, but growth is likely to pick up quite strongly in the third quarter of this year.” The average forecast among 33 economic forecasters for the fourth quarter of 2011 GDP number is minus 0.1 per cent, down from 0.6 per cent in the previous three-month period.

In last year’s Budget, the Treasury based its tax and spending plans on the assumption that the economy would grow by 0.6 per cent in the final quarter of last year. The Bank of England is expected to embark on another round of quantitative easing, the economic stimulus often referred to as “printing money”, in an attempt to shore up the lacklustre recovery.

Last week, figures showed that unemployment rose by 118,000 to 2,685,000 in the three months to the end of November, the highest level since 1994. Although retail sales figures for December were slightly stronger than expected, high street sales remain weak as consumers endure the harshest squeeze on their wallets for decades.

Rachel Reeves, the shadow chief secretary to the Treasury, said: “Last year should have been the year when we secured economic recovery.

“Instead we have seen a year of stagnation and more people out of work than since the last Conservative government in 1992. The Government’s plans are now badly off track because they gambled on cutting spending and raising taxes further and faster.”