UK recession even deeper than feared as Scotland stagnates

THE UK’s double-dip recession is deeper than first thought, according to figures published yesterday – amid fresh warnings about the economic health of Scotland.

The Office for National Statistics (ONS) said the slump in the economy at the end of 2011 was 0.4 per cent of gross domestic product between October and December, compared with previous estimates of 0.3 per cent.

It said its estimate for January to March remained unchanged at 0.3 per cent, but the two consecutive falls in growth have left the UK in recession.

Economists were warning last night that the economy may still be shrinking as a result of the extra holidays for the Queen’s Diamond Jubilee celebrations.

Meanwhile, in Scotland, a report today from Lloyds TSB concludes that the economy “continues to stagnate” and is struggling to find any momentum in the face of the global slowdown.

In one bright note, however, it suggests that Scotland may be avoiding the same double-dip recession which has afflicted the UK as a whole.

Even though experts do not expect the slump to last as long as it did after the financial crisis of 2008, the gloomy forecasts for the rest of the year are piling intense pressure on Chancellor George Osborne, amid claims by some economists that the austerity measures imposed by the UK government are most responsible for the declining economic picture.

Mr Osborne and Bank of England governor Mervyn King have recently unveiled a new funding-for-lending scheme with the aim of pumping more cash into the system and reducing borrowing costs.

However, with confidence low because of the economic picture and the threat of a eurozone implosion, experts said the offer of extra funds may tempt neither lenders nor borrowers.

The Scottish Government yesterday said that the coalition’s austerity regime was “failing”, and called on it to boost spending on infrastructure.

However, the ONS figures published yesterday reveal that, despite the tight restrictions on departments, UK government spending is actually rising at its fastest rate for nearly seven years, up by 1.9 per cent in the first quarter of the year.

The figures pointed to a massive 4.9 per cent drop in the construction sector, its worst performance since the first quarter of 2009. With confidence in the economy draining, the figures also showed that there was a fall in household spending which went down by 0.1 per cent in the first quarter of this year, compared with a previous estimate of 0.1 per cent growth.

Industrial production output, which includes manufacturing, was also revised downwards to a fall of 0.5 per cent, from a 0.4 per cent decline.

In Scotland, the Lloyds TSB survey of business attitudes showed that 33 per cent of firms experienced a fall in turnover, compared with 32 per cent experiencing growth.

That overall score of -1 per cent was an improvement on the -6 per cent in the previous quarter but down from the 2 per cent positive difference at the same time last year.

Donald MacRae, chief economist at the bank, said: “This latest business monitor suggests the Scottish economy continues to stagnate and is struggling to maintain a limited degree of growth momentum in the face of a global slowdown.

“However, there is no definite sign of a relapse into a double dip, but a suggestion of continuing slow recovery with low growth.

“Business confidence has not fallen further but remains at a low level. A return to more vigorous growth in the Scottish economy awaits an increase in confidence in both consumers and businesses.”