KIM LANDERS: The British economy is officially back in recession and economists say there’s a long way to go before the economy is back on the front foot.
The news has added to growing anxiety about the entire Western European region.
Finance reporter David Taylor has more.
DAVID TAYLOR: If you exclude two World Wars, it’s the worst four years for the British economy in a century.
British consumers are being squeezed by rising prices and a freeze on wages.
VOX POP: Everything is just going up and wages aren’t going up. I’ve been on the freeze now for four years so now I’m struggling.
VOX POP 2: Not really confident, no I don’t think things are going to change. Not for, I would say, two or three years.
DAVID TAYLOR: That lack of confidence is filtering through to the rest of the economy. The manufacturing sector is contracting by 0.1 per cent. Construction too is down 3 per cent.
David Hall runs a plastic pipes business for the construction industry.
He’s simply learning to adapt to the new economic environment.
DAVID HALL: We are in the environment that we’re in. I don’t think is, we can’t sit holding our hands, holding our head in our hands worrying about being low growth because that is the way it is going to be. That is the new norm.
DAVID TAYLOR: The services sector is a major part of the British economy, and it is showing some life, but only just.
Without the services sector, the recession would be far deeper than it is.
David Hale is an international economist based in Chicago.
DAVID HALE: Well, I don’t think this is going to be a severe recession. I think it will be a technical recession.
DAVID TAYLOR: Even still, economists are warning the recession still has some way to go.
Stephen Walters from JP Morgan.
STEPHEN WALTERS: It’s pretty much across the board not just the quite small construction sector but more broadly in the part of the economy that represents about three-quarters of their GDP that was also very soft.
DAVID TAYLOR: Well given that, is the recession likely to get even worse from here?
STEPHEN WALTERS: Well, it is going to get longer. I don’t think it will get much worse.
DAVID TAYLOR: Is there a difference?
STEPHEN WALTERS: Well, I think there is a difference because we do actually have quite shallow downturn. My colleagues in the UK expect GDP to contract again in the second quarter. Now that will make it three straight so that is a longer downturn but far less severe than what we saw during the global financial crisis when the UK economy was in a severe recession then and GDP contracted for more than a year and at a much faster pace. So, look I am not trying to gild the lily here, it is not a great outlook at all.
DAVID TAYLOR: It’s put the British prime minister, David Cameron, under enormous political pressure.
But he insists the answer to Britain’s economic problems is not to repeat the mistakes of the past.
DAVID CAMERON: This is a tough and difficult situation that the economy is in but the one thing we mustn’t do is to abandon public spending and deficit reduction plans because the solution to a debt crisis cannot be more debt.
DAVID TAYLOR: Meanwhile over in the United States, the economic recovery remains fragile.
The US Federal Reserve chairman, Ben Bernanke, is doing his best to instil some confidence in the economy.
BEN BERNANKE: We’ll continue to assess, you know, looking at the economic outlook, looking at the risks whether or not unemployment is making sufficient progress towards its longer run normal level and whether inflation is remaining close to target and if appropriate and depending also on an assessment of the costs and risks of additional policy actions, we remain entirely prepared to take additional balancing actions if necessary to achieve our objectives.
So those tools remain very much on the table and we will not hesitate to use them should the economy require that additional support.
DAVID TAYLOR: The Australian share market opened this morning after being closed yesterday for the Anzac Day public holiday.
It appears investors may be focusing on Australia’s closer economic ties with the Asian region.
At midday in the east the benchmark share index was up around half a per cent.
KIM LANDERS: David Taylor reporting.