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The UK economy in second recession


The economy contracted 0.2 percent confounding forecasts for 0.1 percent growth, the ONS said

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The UK economy is in its second recession since the financial crisis after contracting by 0.2 percent in the first three months of 2012 and despite government attempts to encourage the private sector to invest, official data showed on Wednesday.

The news will severely dampen business and consumer morale just as recent economic indicators were beginning to suggest the UK might escape a double dip recession unlike its counterparts in the euro zone.

News of recession could not come at a worse time for the Conservatives-led coalition government. Hurt by a number of political embarrassments including a poorly received annual Budget last month, the parties are trailing the opposition Labour party ahead of municipal elections on 3 May; their first big electoral test since coming to power in 2010.

The unexpected contraction in the first three months of 2012 - a 0.2 percent dip in gross domestic product - confounded forecasts for 0.1 percent growth.

A sharp fall in construction output was behind the surprise contraction, the Office for National Statistics said.

A recession is defined as two consecutive quarters of contraction. The economy shrank by 0.3 percent in the fourth quarter of 2011.

The government desperately needs growth to achieve its overriding goal of eliminating Britain's large budget deficit over the next five years. But this will be a challenge as many of Britain's euro zone trading partners are already in recession.

The figures will also be a conundrum for the Bank of England, which had appeared poised to end its second round of quantitative easing gilt purchases due to survey evidence that the underlying economy was strengthening.

Newspapers and allies who once fell over each other to sing his praises now accuse the expensively educated Conservative Party leader of "speaking for the few" and of "vanity globe-trotting" as the economy sputters and Britons suffer the harshest state spending cuts for a generation.

Things took a turn for the worse on Tuesday when James Murdoch told an inquiry that Jeremy Hunt, Cameron's culture minister and a close ally, had numerous secret contacts with him and his top London lobbyist ahead of a controversial merger. Rupert Murdoch, James' media mogul father, was answering questions at the inquiry on Wednesday.

Ministers have been urging the UK's corporates to spend their cash reserves, which the latest calculations put at around £754 billion, but chief financial officers, the stewards of company finances, are not sufficiently confident to begin investing the hard-won cash yet.

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The UK economy in second recession
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