Will Britain slide into a triple-dip recession?

Whether economy has contracted for second quarter in row may be a trivial detail that distracts from bigger, more dismal picture. Forecasters are split over whether the UK economy managed to grow in the first quarter of this year or contracted again…


Powered by Guardian.co.ukThis article titled “Will Britain slide into a triple-dip recession?” was written by Katie Allen, for theguardian.com on Monday 22nd April 2013 11.52 UTC

The wait to find out if the UK slipped into a triple-dip recession is over this week, with official GDP data out on Thursday. Forecasters are split over whether the UK economy managed to eke out some growth in the first quarter of this year or contracted again.

The consensus forecast in a Reuters poll is for a tiny 0.1% quarter-on-quarter uptick. But predictions range from a 0.2% drop in GDP to growth of 0.3%.

The Office for National Statistics (ONS) said the economy slipped by 0.3% in the fourth quarter. Thursday will be statisticians' first take of three for the first quarter and economists caution that the numbers, as well as data for previous quarters, could well be revised either up or down.

But if the figures do show two successive quarters of contraction from the beginning of October to the end of March it will mark a triple-dip recession – unprecedented in living memory.

Still, many economists also warn that whether the UK officially slipped into a triple-dip or not is a trivial detail that distracts from the bigger picture of an economy facing headwinds from squeezed consumers, an austerity drive and struggling industry.

Here is a roundup of views ahead of Thursday's 9.30am figures.

Brian Hilliard, Société Générale

The first estimate of GDP is an output measure on two months' hard data for industrial production, construction output and services output available to the ONS together with forecasts for the third month. However, only one month's services data is published before the GDP release. That makes it rather difficult to make a sensible forecast, but here goes! Based on reasonable assumptions for March, Q1 growth in industrial production should be between 0% and 0.1% quarter-on-quarter. Construction output should fall by between 3% and 6% and services should rise by about 0.2% quarter-on-quarter. The weather will have been a dampening factor in construction output and unfortunately that weakness is likely to outweigh the growth in services. The result should be a fall in GDP of about 0.1% quarter-on-quarter. This will inevitably spawn "triple dip" headlines. The real story is modest underlying growth but not high enough to reduce the output gap.

Nick Bate, Bank of America Merrill Lynch

We think the preliminary estimate of Q1 GDP may show zero growth over the quarter. Indeed, we think the balance of risks may be skewed a little to the downside … Monthly data available suggests that output in both the industrial and services sectors may have risen a little over the quarter, but another notable fall in construction output may have knocked around 0.2 percentage points off GDP growth.

Vicky Redwood, Capital Economics

It is questionable whether it should be considered a "true" triple-dip … The 0.3% quarterly drop in real GDP in the fourth quarter (Q4) can probably be wholly accounted for by the reversal of the Olympics boost which supported output in the third quarter. Without the Olympics effect, output would probably have avoided a contraction. In any case, any triple dip might well be revised away in the future. The double dip between Q4 2011 and Q2 2012 was initially estimated to consist of three quarterly contractions in GDP of 0.2%, 0.2% and 0.7%. But the two 0.2% contractions are now estimated to be 0.1% drops. So it is already being called the double dip that almost didn't happen.

Nonetheless, we should not let the somewhat meaningless debate about the triple dip distract from the big picture – that this recovery is still depressingly dismal. To rub salt into the wound, the US Q1 GDP figures also released this week are set to show growth rising by 3.2% annualised (a quarterly rise of about 0.8%). This will leave the divergence between the two economies looking even more striking.

Howard Archer, IHS Global Insight

In reality, it makes very little difference whether the economy expanded modestly in the first quarter, contracted marginally or was flat. However, it would be good for psychological/confidence reasons if the economy could dodge contraction in the first quarter and, therefore, avoid nasty and potentially damaging headlines about "triple-dip recession".

We put the odds of GDP contraction in the first quarter (and hence a triple-dip recession) at around 30%. So we reckon there is a 70% chance that the economy was either flat or grew marginally.

We suspect that expansion in the dominant service sector was strong enough to allow the economy to eke out marginal GDP growth of 0.1 to 0.2% quarter-on-quarter in the first quarter. This would result in year-on-year GDP growth of 0.4% year-on-year. Admittedly, it looks like there was substantial contraction in construction output in the first quarter, but the sector only accounts for 6.8% of GDP, while the services sector accounts for 77%. Meanwhile, industrial production was likely essentially flat in the first quarter, given that there was a marked rebound in output in February from January's sharp drop.

Ruth Lea, economic adviser to Arbuthnot Banking Group

On the basis of ONS data so far available and survey material, GDP for 2013 Q1 could be a tad positive, thus avoiding a triple dip. But whether or not a triple dip is avoided, economic performance is weak. The latest labour market data showed an increase in unemployment, the February trade data deteriorated and bank lending to the business sector fell in February. The IMF downgraded its forecasts for the UK last week, with its chief economist, Olivier Blanchard, saying the chancellor should reconsider his "strict" austerity programme, and Fitch's downgraded Britain's triple-A rating to AA+.

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