Q1 GDP: What's the story?

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This morning's preliminary GDP release shows UK output continued to fall in Quarter 1 2012, putting the UK back into a technical recession. Overall industrial output was dominated by weak construction activity that has dragged down overall output.

The key quarter on quarter changes are as follows:

  • Total GDP fell 0.2%
  • Manufacturing output reduced by 0.1% but figures suggest output increased in month of March
  • The construction sector, the main driver of the economy re-entering recession, fell by 3%

What is happening in Manufacturing?

The quarterly contraction in manufacturing is a concern. However, on the back of negative growth in January and February the quarterly figure points to output growth of 0.2 in March.

So, how does the overall picture fit with recent economic indicators?

Some indicators clearly fit with the overall story told by these weak GDP figures. Worsening credit conditions and continuing low consumer confidence are both concerning as they are likely to act as a constraint on household and business activity, further slowing recovery. A continuing weak construction sector will also continue to dampen growth prospects.

The picture is not all bad though and the underlying health of individual sectors is not clear. The Purchasing Managers Indices for both Manufacturing and Services have been positive for the first quarter of 2012 and a raft of private sector surveys, not least of which EEF's own Business Trends Survey, broadly agree that there has been modest improvement in manufacturing trading conditions in the first few months of the year. With the manufacturing sector growing in March and output for the services sector growing by 0.1% for the quarter we have reason to be cautiously optimistic.

Trade figures for the three months to February 2012 also improved following record high exports to non-EU countries at the end of 2011. These markets are crucial and will be of growing importance as the UK looks ahead to recovery.

Overall, these GDP figures are both a reminder of the big challenges facing the UK and world economies, and a confirmation of the patchy and unsteady recovery that we have been expecting.


This person has now left EEF. Please contact us on 0808 168 1874 or email us at enquiries@eef.org.uk if you have any questions.

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