UK Economy Shrinks Most In 50 years

The UK economy shrank by the most in more than half a century in the first three months of the year, according to revised figures which were much weaker than originally estimated.

The 2.4 per cent decline in gross domestic product was sharper than the 1.9 per cent initially calculated, the Office for National Statistics reported, and was greater than the 2.1 per cent fall expected by economists. About half the revision was due to the introduction of new construction sector data and the rest was bacause of more complete services sector figures showing a sharper decline.

Not since 1958 has the quarter-on-quarter decline in GDP been greater, while the 4.9 per cent drop compared to a year earlier was the largest since records began in 1948. “‘You’ve never had it so bad’ seems the most apt summary of the state of the UK economy in Q1,” said Ross Walker, economist at RBS. “Although to some extent this is ‘old news’, it does serve to emphasise the size of the hole out of which the UK must climb.”

The precipitous decline in GDP in the first quarter reflected the fallout after the credit crisis escalated dramatically from September of last year onwards and highlights the depth of the recession that the UK has been suffering. But since the end of the first quarter there have been growing signs that the economy is stabilising. Manufacturing output actually grew in March and April, while survey data suggested the economy has returned to growth.The respected economics thinktank, the National Institute for Economic and Social Research, said it thought the economy began to grow again in April.

“The survey data suggest we have at least stopped digging, but the economy remains on course for a lacklustre pace of recovery,” Mr Walker said. The Bank of England has warned that the economy faces a slow recovery, as banks remain fragile and lending weak.

The output of the construction was revised down to show a 6.9 per cent decline from the first estimate of a 2.4 per cent drop. However, the fall in output was actually less severe than the 9 per cent fall that a more recent ONS revision had suggested, which had led many to expect GDP to be revised down sharply. Services output, which makes up about three quarters of the UK economy, was revised down to see a drop of 1.6 per cent rather than the 1.2 per cent orginally reported.

“Revisions to GDP are larger than usual, reflecting greater uncertainty in measurement during a period of rapid change in economic activity,” the ONS said. The GDP figures confirmed that the recession began in the second quarter of last year, after the economy shrank by 0.1 per cent in the April to June period, rather than the 0.0 per cent decline originally reported.

The economy contracted by 4.9 per cent from its peak in the first quarter until the first quarter this year. That is worse than the 2.5 per cent drop in the 1990s recession, but less than the 5.9 per cent fall in the early 1980s recession. Despite the dramatic contraction in the economy rating agency Fitch reconfirmed the top triple-A rating on the UK’s sovereign debt at stable - along with the US, France and Germany - refusing to follow rival Standard & Poor’s which recently changed the UK’s debt outlook to negative.

The household saving ratio fell to 3 per cent from 4 per cent in the final quarter of last year, as households’ real disposable income dropped by 2.4 per cent due to lower earnings, but consumption did not fall as sharply. Business investment fell by 7.1 per cent during the quarter. Inventories made a smaller drag of 0.4 percentage points out of the 2.4 per cent fall in GDP, compared to the previous estimate of 0.6 percentage points.

“The UK national accounts ... underline the fact that the economic recovery is built on very fragile foundations,” said Capital Economics. “With the annual rate pulled down from -4.1 per cent to -4.9 per cent, average GDP growth in 2009 now looks likely to be -4 per cent or weaker rather than the -3.5 per cent we previously expected.

“Note too that the breakdown is not pretty, with the renewed fall in the household saving ratio from 4 per cent to 3 per cent underlining that the adjustment in the household sector has a long way yet to go.”

Source: http://www.ft.com/cms/s/0/971b65f6-6551-11de-8e34-00144feabdc0.html

Tags: UK, UK Economy, Economic contraction, Capital Economics, UK National Accounts, Triple-A rating, GDP, Fitch, FT, Global Economic News, S&P, Standar and Poor’s, Inventories, Office for National Statistics,

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N Korea Defiant After New Sanctions

North Korea has warned that it will increase its nuclear activities and could launch military action against the US and allies after the UN Security Council announced new sanctions over last month's atomic test. North Korea's foreign ministry said it will regard any attempts to impose a blockade against it as an "act of war", the state-run KCNA news agency reported on Saturday.

"We'll take firm military action if the United States and its allies try to isolate us," the unnamed foreign ministry spokesman was quoted as saying. The UN resolution, passed on Friday, banned all weapons exports from North Korea and authorised member states to inspect sea, air and land cargo, requiring them to seize and destroy goods that violate the sanctions. The UN resolution was passed as media reports suggested that North Korea could be planning a third nuclear test.

Enrichment Programme

But North Korea remained defiant, pledging to start a uranium enrichment programme for a light-water nuclear reactor. The foreign ministry spokesman also warned that the North would "weaponise all plutonium [in its possession]" and had "reprocessed more than one-third of our spent nuclear fuel rods."

Alexander Neill, the head of the Asia security programme at the Royal United Services Institute for Defence Studies in the UK, told Al Jazeera that while the warning is "bluster", it is also a serious threat. "This [threat of enrichment] is not a new phenomenon," Neill said. "It would take a long time and sophisticated technology to convert plutonium to missile-grade material, but it is a gesture with a lot of teeth behind it. "When it comes to the international reaction, the only option is for the UN Security Council resolution. "It is almost certain that the US and Japan will enforce a blockade which will put a pincer movement around any of the sea trade going in and out of North Korea.

"The question is whether it will have any result inside North Korea. The regime has proved resilient to sanctions in the past," he said. Hillary Clinton, the US secretary of state, said on Saturday: "The North Koreans' continuing provocative actions are deeply regrettable'. "They have now been denounced by everyone, they have become further isolated, and it is not in the interest of the people of North Korea for that kind of isolation to be continued."

'Firm Opposition'

North Korea's nuclear test in May defied a previous Security Council resolution adopted after the North's first underground nuclear test in October 2006. Zhang Yesui, China's UN ambassador, said the resolution showed the "firm opposition" of the international community to North Korea's nuclear ambitions. The backing of China, one of North Korea's key trading partners and regional allies, and Russia for the resolution gave greater weight to the new sanctions as they have been reluctant to act in the past.

"To a certain extent, China has been happy to leave North Korea to its own devices," Al Jazeera's Tony Cheng, reporting from Beijing, said. "Now China is profoundly concerned about the regime in Pyongyang, which seems increasingly unstable and seems increasingly not to follow Beijing's lead." Japan is expected to impose its own sanctions on North Korea, including suspending all trade, in a largely symbolic demonstration of its opposition to the test, the Kyodo news agency reported.

'Tightening Sanctions'

Al Jazeera's Cheng said that it was difficult to judge what effect the new sanctions would have on the already impoverished state. "This is really just tightening sanctions that already exist on North Korea, but they do target it in specific areas," he said.

"I think that one area that will hurt quite a lot will be the ban on conventional weapons arms sales and the possibility of stopping ships going to and from North Korea ... that is a business that could earn Pyongyang as much as $100m." Jamie Metzl, the executive vice-president of the Asia Society, said North Korea had exported arms to about 20 countries in the past, including Iran, Egypt, Pakistan, Myanmar, Zimbabwe and Sudan.

"Their finances are in big trouble. They have almost nothing that anybody else wants to buy but these arms," Metzl said. The UN vote comes amid continuing tensions on the Korean peninsula after North Korea on Thursday demanded a 3,000 per cent increase in rent and a 400 per cent increase in wages for 40,000 workers employed by South Korean companies at an industrial park in the North Korean border town of Kaesong.

North Korean state media issued a statement on Thursday saying that relations between the two countries had reached the "phase of catastrophe" and that the Kaesong complex had been "thrown into a serious crisis".

Source: http://english.aljazeera.net/news/asia-pacific/2009/06/200961361534368421.html

Tags: Kim jong il, Kim jong un, USA, China, Russia, UK, France, UN Security Council, Sanctions, Nucelar reactors, Nuclear Weapons, Global Development News, Hillary Clinton, Kaesong industrial Park, South Korea, Japan, Kyodo,

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