Economy analysis: Keep calm and carry on, indications favour an improvement in the economic climate

Yes, we are now in technical recession after a fall of -0.3 per cent in the final quarter of last year.

And this means that there has been no growth at all in the economy over the past year.

But the latest change is largely driven by construction with services contributing positively to growth and manufacturing neither contributing positively or negatively.

Production made a small negative contribution, but this was due exclusively to a fall in mining and quarrying output of -3.6 per cent, reflecting the continuing decline in oil and gas extraction.

The latest GDP data are likely to be revised upwards because they reveal a much weaker picture than revealed by UK business surveys.

The latest PMI construction surveys stand in marked contrast to the ONS data.

And business surveys generally appear to suggest that the slowdown noted at the end of last year is beginning to turn round.

Demand in the high street also shows signs of revival, with the volume of retail sales growing by 1.8 per cent between February and March.

We should see some positive growth in the second quarter – but it is going to be a hard slog.

We are, in my opinion, enduring a weak recovery largely because of the UK government’s austerity programme.

Some suggest that the weak recovery is due to a permanent loss of financial services output due to the credit crunch.

Hence, the problem is a supply shock and not a demand shock via austerity.

I don’t buy that. Financial services managed to raise their share of GDP over the recession according to other ONS data. Others take the view that the current UK policy mix, favouring a much looser monetary and exchange rate policy than elsewhere but tighter fiscal policy, may start to generate growth dividends in the future.

I am much less sanguine. With interest rates close to zero – the zero bound – monetary policy effects on demand and growth are much weaker than in normal times.

In the meantime, UK GDP now stands at 4.3 per cent below its pre-recession peak, austerity continues, and the situation in the eurozone has worsened again.

• Brian Ashcroft, is emeritus professor of economics at the University of Strathclyde.