U.K. First-Quarter GDP Unrevised, Britain Technically Suffers A Recession
U.K. GDP first quarter reading remained unrevised at 0.3% contraction which means the British economy has formally entered a technical recession after recording 0.3% contraction in the last quarter of 2011.
On the annual basis, the reading was downwardly revised to -0.2% from the preliminary of -0.1%.
The data reflects the ongoing weakness in the economy`s major sectors, where manufacturing contracted 0.5% while services advanced 0.2%, on the back of the anemic household spending, which slipped 0.1% on the quarter, and escalating European debt crisis. Still the economy is suffering from weakness in consumer spending, where wages rose only 0.6% in the three months through March, the least since 2009.
Details with the release showed that the quarterly drop was triggered by the drop in exports which plunged 1.7% while imports, on the other hand, fell 0.3%.
In fact, the drop in exports reflect the weak demand from the euro area, U.K.'s main trading partner, and worldwide in addition to the strengthening sterling in the first quarter.
On the upside, government spending advanced 1.9% in the first quarter and total business investment increased to 3.6% from -3.3%.
The economy will return to growth in the second half of the year while outlook remains weak for the first half of the year, according to the OECD May forecasts.
The BoE refrained from adding to stimulus in June despite the deterioration in economic data and drop in inflation, but last week BoE King warned of a “black cloud” from Europe referring that adding stimulus “is growing,” where he revealed that liquidity facility to aid banks and a credit-easing operation that may boost lending in the economy up to 80 billion pounds are ready for activation.
The minutes of the June meeting, however, showed a change in policy maker`s opinion regarding the size of the stimulus as four members of the MPC, including the Governor, David Miles and Adam Posen, preferred to increase the size of the asset purchase programme by £50 billion to a total of £375 billion, while Paul Fisher called for a boost by £25 billion to a total of £350 billion.
MPC members judged that recently uncertainty regarding economic outlook had increases while inflation risks had receded, which may suggest seeing more asset purchasing in the coming period.
As of 08:55 GMT, the pound showed a drop versus the U.S. dollar to trade around 1.5554 after opening today's trades at 1.5566.