UK fall into recession is worse than expected
The UK and a number of eurozone countries look to be heading deeper into recession, a clutch of new surveys has revealed.
The data, which shows the UK economy shrank more than first thought in the first quarter of the year and output from the eurozone has fallen sharply, back fears of contagion from the Greek debt crisis and triggered calls for a response by central banks.
The revised UK gross domestic product (GDP) reading from the Office for National Statistics (ONS) came as a particular surprise and saw a Treasury minister call for action from the Bank of England.
The data showed GDP shrank by 0.3% between January and March, down from a first estimate of 0.2%. Much of the deterioration was due to a steep decline in construction of 4.8% - the sector's steepest fall in 11 years.
Labour said the revised figures from the Office for National Statistics (ONS) showed that the coalition government's austerity programme had failed, and called on David Cameron for a change of course to boost growth and jobs.
But Treasury minister Chloe Smith insisted the Government would not be deflected from its drive to get the deficit down.
"We need to stick to our path. It would not be acceptable to fail to deal with our debts," she said.
Ms Smith indicated that the most appropriate response might be for the Bank of England to print more money or cut interest rates, as the International Monetary Fund recommended in its report on the UK economy this week.
Meanwhile, the composite Purchasing Managers' Index (PMI) for the single currency area, which provides a snapshot of the continent's services and manufacturing sectors, fell to 45.9 in May, down from 46.7 in March. This is the lowest reading since June 2009. Any figure below 50 indicates a contraction in activity.
"[The] dismal PMI figures clearly indicate that the eurozone economy remains in dire straits and provide a clear warning that eurozone GDP will almost certainly show a contraction in Q2 after stagnating in Q1," said Martin van Vliet of ING.
The disappointing data, combined with the continuing uncertainty about Greece's future in the single currency, pushed the value of the euro to a two-year low of $1.2515 against the US dollar on the foreign exchanges yesterday.
The Italian prime minister, Mario Monti renewed his call for joint guarantees on eurozone debt yesterday, despite the firm rejection of the idea by Germany at this week's informal European leaders' summit in Brussels.
The data comes hot on the heels of news that activity in the European economy fell to a three-year low in May
The second estimate, which could be revised later, means the UK is in a technical recession - defined as two quarters of decline in a row - following a 0.2% fall in national income in the final three months of 2011.
The decline shown by the construction industry the biggest in 11 years