Even though preliminary data has been released showing the UK entered a technical recession over the last quarter of 2011 and the first quarter of 2012, investment experts are taking the data in their stride. Many believe the contraction in the UK’s gross domestic product (GDP) is not such a serious concern for investors.
Here’s what some of the experts have to say about the latest GDP data:
Paul Mumford, senior investment manager at Cavendish Asset Management:
“While hardly good news, I very much doubt the slight contraction revealed today heralds a double dip in any real, meaningful sense. Company results have on the whole been reasonable to good, and don’t reflect a double-dip scenario. Although there is certainly lingering weakness in certain consumer areas there are promising signs elsewhere. Whilst complacency must be avoided, so must the tendency to scare easily – for example, commentators were generally fearful of a severe retraction for housebuilders not too long ago, but these are actually holding up quite well.
“Almost none of the companies we speak with regularly have the notion of a double dip on their agenda for this year. Instead the expectation, as with the market, has been for possible slight contractions in some quarters of the 0.1 per cent variety. This has been borne out, and the fact that in the event the contraction is a tenth of a percentage higher than expected doesn’t change things.
“The bigger picture reveals an economy bouncing along on a level plane, rather than a significant downward trajectory. All that said, only time will truly tell.”
Charles Luke, manager at the Murray Income Trust PLC:
"While today's news may be viewed as a double-dip recession, growth in the UK has been sub-par for the last three years. The scale of austerity and debt problems in mature economies means the economic environment is likely to be challenging for some time to come. However, many companies are in good financial shape and are exposed to markets that are growing. While earnings may moderate corporate balance sheets are sufficiently robust to continue to reward investors with growing dividends."
Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment:
“The UK is technically in recession after two negative quarters. We'll most likely get a third contraction in GDP in Q2 due to the Diamond Jubilee bank holiday - contrary to popular wisdom it is working and not partying that drives the economy.
“That said, this isn't a recession in the usual sense. Since the last general election the UK has been bumping along the bottom with growth sometimes a bit above, sometimes a bit below zero. The Bank of England's quantitative easing has failed to offset the negative impact of government spending cuts in the way cuts in interest rates would have.
“In the US, where austerity exists only in rhetorical form and not in reality, the recovery from the 2008 slump continues to gather momentum and unemployment is falling. Growing your way out of debt looks like the better strategy.”
Azad Zangana, European economist at Schroders:
"The double dip in recession comes as no surprise to us. We have been forecasting another recession since last November when the Eurozone crisis intensified. Indeed, we are forecasting a further falls in GDP for the second quarter which will be caused by the extra special bank holiday to celebrate the Diamond Jubilee.
"The economy slipping back into recession will come as a blow for both the Chancellor. The Office for Budgetary Responsibility will now have to revise down its forecast, which will worsen the fiscal numbers further. Its too early to call for a reversal of government policy, though these latest results do highlight that the economy will not withstand any further acceleration in cuts. We suspect the Treasury recognises this and is why the Chancellor chose to prolong the cuts into 2016/17, rather than deepening the cuts in the near-term.
"As for the Bank of England, it will be remarkable if the Bank does not respond with more Quantitative Easing. Some of the members of the Monetary Policy Committee have recently adopted a more hawkish tone, suggesting that they are more worried about inflation. However, the adverse impact this news will have on consumer confidence will be important for growth and inflation over the coming quarters. We expect the Bank to extend its Quantitative Easing programme next month by an addition £50 billion."
Data from the Office for National Statistics shows the UK economy contracted by 0.2% in the first three months of this year, after contracting by 0.3% in the final quarter of 2011.
