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GDP fall sparks fresh fears of recession

FEARS are mounting that Scotland is tipping back into recession after it emerged that the overall UK economy shrank in the fourth quarter of 2011, and company failures north of the Border hit a fresh record last year.

GRIM NEWS: Scots manufacturers cut their workforces in the last three months, the CBI said. Picture: Colin Mearns
GRIM NEWS: Scots manufacturers cut their workforces in the last three months, the CBI said. Picture: Colin Mearns

Among a raft of grim economic releases yesterday, a survey from the Confederation of British Industry showed Scottish manufacturers suffered a plunge in new orders from within the UK, and cut their workforces sharply in the last three months.

The survey's findings are likely to fuel fears of renewed recession north of the Border. Scottish manufacturers' expectations for orders during the coming three months were the weakest since April 2009 and these companies have cut overall investment plans as their confidence has plunged.

The Office for National Statistics revealed yesterday that UK gross domestic product fell by 0.2% in the fourth quarter of last year. This was the first fall in economic output since a 0.5% drop in the final quarter of 2010 – when GDP was hit by severe winter weather.

Many economists fear UK GDP could fall further in the current quarter to March. Such a drop would put the UK back in recession – which is defined as two consecutive quarters of falling GDP.

Brian Ashcroft, emeritus professor of economics at the University of Strathclyde and economics editor of the highly-regarded Fraser of Allander Institute commentary, said of the fourth-quarter fall in UK GDP: "It is certainly not encouraging."

Mr Ashcroft noted that the recovery envisaged by the Coalition Government was meant to be based on shifts from domestic to external demand, from consumption to investment, and from the public to the private sector.

He added: "There is little evidence of this occurring at all."

Mr Ashcroft believes that official data due in April will show the Scottish economy suffered a similar fall in output to that in the UK as a whole in the fourth quarter of last year. And he sees a significant danger of further contraction in the first quarter of this year.

He said: "I think what we are going to see for Scotland is a similar outcome (to the UK as a whole). The two seem to be tracking quite closely in the recovery."

Asked if he saw a danger of further economic contraction in the current quarter, Mr Ashcroft replied: "I think there is a strong likelihood that we will see more negative growth in the first half of this year, at best stagnation.

"I don't think we are going to see much robust growth in the first half of 2012. That includes the first quarter and the second quarter."

Chancellor George Osborne said the fall in UK GDP in the fourth quarter was "disappointing".

Brendan Barber, general secretary of the TUC, said: "The Chancellor's economic strategy is going horribly wrong. The grand austerity plan is failing to tackle the deficit, causing unemployment to spiral out of control, and is now dragging the country back towards recession."

Analysis by accountancy firm PKF of figures published by the Accountant in Bankruptcy showed that 1278 Scottish businesses went bust in 2011 – the highest on record and up 16.4% on the previous all-time high which was hit in 2010.

Bryan Jackson, corporate recovery partner with PKF, said: "These figures are a further sign that the economy is not going well. Whilst most of these businesses will be fairly modest in size, the impact on the overall economy of this level of failure is likely to be great.

"Given that corporate insolvency is always a last resort, this extremely high failure rate begs the question of just how many other businesses in Scotland are simply hanging on and about to go under at any minute.

"The other issue is the domino effect – where one business goes bust and its debts lead to debts among its suppliers who in turn go bust.

"The result is that many more businesses may be suffering due to external circumstances which are outwith their control."

He added: "The fact that the numbers are getting worse is a further sign that we are some considerable way off nearing the end of this period of economic downturn.

"Quite how far off we are is extremely difficult to predict, but I would expect record numbers of corporate failures to continue well into 2012 and beyond."

The ONS data showed the UK's dominant services sector stagnated in the fourth quarter, with manufacturing output falling 0.9% and construction contracting by 0.5%.

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