The UK has slipped back into recession after the economy contracted in the first quarter of 2012, an influential think-tank warned today.
Gross domestic product (GDP) - a broad measure for the total economy - is on course to have fallen by about 0.1 per cent in the three months to the end of March, the Organisation for Economic Co-operation and Development (OECD) said.
The gloomy forecast comes after official figures revealed the economy contracted by 0.3 per cent in the final quarter of 2011, which was worse than the previous estimate of a 0.2 per cent fall.
A decline in the first three months of 2012 will mean the UK is officially back in recession, which is defined as two quarters in a row of declines.
The OECD also warned the recovery for the world's biggest economies would be fragile, with the outlook for Europe "very weak".
Economists are divided as to whether GDP will fall in the first quarter of the year. A number of upbeat surveys have suggested a return to mild growth in the quarter.
And any slump would be modest compared with the 2008/09 recession and the OECD predicts a return to growth in the second quarter of the year.
The Office for National Statistics today said the powerhouse services sector grew by 0.2 per cent between December and January, after a slight decline in the final quarter of 2011.
However, it is generally agreed that the UK’s economic growth will be feeble for the first half of 2012 at least, although falling inflation should increasingly deliver a boost to consumer spending as the year progresses.
The Government’s independent forecaster, the Office for Budget Responsibility, predicts the UK will avoid a recession but the economy will grow by just 0.8 per cent over the course of 2012.
The OECD today also warned of a two-speed recovery developing in the G7 nations, with North America enjoying a rapid expansion but Europe weighed down by austerity measures.
The OECD said the recent hikes in oil prices, which have pushed Brent crude to
above $120 a barrel, would push inflation up higher than it previously thought, wiping up to 0.2 per cent from growth across G7 nations over the next year.
It expects Italy. which is already in recession, to contract for the first two quarters of 2012, while France will contract in the first quarter and Germany’s growth will be lacklustre.
In November, the OECD warned the eurozone crisis was a key risk for the UK economy and it today called for the firewall to be increased in size to help prevent the crisis worsening.
Last year it slashed the UK’s 2012 growth forecast to just 0.5 per cent from 1.8 per cent earlier in the year and said it expects unemployment to hit 9.1 per cent by 2013, putting another 400,000 people out of work.
PA