Wednesday 22 January 2020

UK slips back into recession after 0.2pc fall in growth

Donal O'Donovan and Brendan Keenan

THE UK is in recession for the second time since the start of the financial crisis, according to official figures.

It's the first 'double-dip' recession to hit Ireland's most important trading partner since the 1970s.

Yesterday, the UK's Office for National Statistics said that the size of the overall economy there declined by 0.2pc in the first three months of 2012.

It follows a 0.3pc decline in the final three months of last year. Two back-to-back quarters of economic decline is considered a recession.

It's bad news for Ireland, which slipped into recession in the second half of last year.

A study in the Central Bank of Ireland's 'Macro Economic Review 2012', published last month, warned that weaker external demand from Ireland's main trading partners was a key risk to hopes of a recovery in the domestic economy here.

According to that report, a 1pc decline in UK gross domestic product (GDP) triggers a 0.8pc decrease in the size of the Irish economy.

It also adds up to 3.6pc to the unemployment rate, according to the same research.

The UK is nowhere near that level of decline -- but the latest 0.2pc slowdown there could mean a 0.16pc decline in Ireland's economy, according to the Central Bank model.

Here, the greatest impact from the UK slowdown will be felt by small and medium-sized Irish-owned companies that sell into the UK market, according to Trinity College Dublin economist Philip Lane.

While the multinational sector is likely to shrug off the UK news, indigenous exporters of traditional products like food and drinks are likely to be the worst-hit by the UK slowdown, according to Professor Lane.

Joe Durkan of the ESRI said confirmation of a slowdown in the UK was likely to be echoed inside the eurozone as the year goes on.

The weakening demand from the UK is already reflected in slower industrial production figures for this country, he said.

Those forecasts were upset by the biggest fall in construction output in three years, coupled with a slump in financial services and oil and gas extraction.

British Prime Minister David Cameron said the figures were "very, very disappointing".

In Dublin yesterday, a leading UK analyst said there was a 50pc chance that Britain would leave the European Union within the next 10 years.

Charles Grant, a founding director of the generally pro-EU think-tank, Centre for European Reform, said that the creation of a more integrated eurozone to save the single currency would increase the differences between Britain and the euro area.

Split

Mr Grant told a meeting of the Institute for International and European Affairs that the only split now in the governing Conservative Party was between those who wanted Britain to remain a member -- who included Mr Cameron -- and those who wanted to leave.

Mr Grant said anyone who wanted to succeed Mr Cameron as Conservative leader would have to promise a membership referendum to have any chance of selection.

There would be no such referendum in this parliament, but it could not be ruled out after the next general election.

The British economy could probably survive not being in the EU, but there would be serious consequences for the whole union, especially Ireland. It would also threaten the existence of the United Kingdom.

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