UK falls deeper into recession

       UK GDP has been revised down to -0.3pc after a sharp drop in construction output, putting pressure on the Bank of England to restart its quantitative easing programme.

The Bank of England looks set to pump more money into the economy, having paused its £325bn quantitative easing programme earlier this month

Analysts say;

Simon Hayes, Barclays Capital: We were expecting the downward revision because of the ONS's announcement a couple of weeks ago about the weak construction data but I think the interesting thing is looking at the spending side of the equation. In actual fact, final demand for supply to consumers, business investment and government were all actually reasonably firm and the weakness seems to have been in stock building, which is a very erratic item, and probably indicates that the weak first-quarter number isn't so much a reflection of weak demand but rather firms becoming very cautious about the outlook for demand and so running down their stocks.


Amit Kara, UBS: I think the numbers were disappointing but expected. As far as policy is concerned the MPC was aware of the risks to the Q1 GDP print at the time of its decision and as such, we do not expect them to embark on a further QE programme at the next meeting at least. That's not to say that the committee will not expand on QE but I think the key will be the state of the wholesale funding markets for banks and any flare up in the euro area. But for now we expect the MPC to stay on hold.

Jane Foley, senior currency strategist at Rabobank: The downward revision to UK Q1 GDP, yesterday's dire retail sales data, the downward trend in UK CPI inflation, worrying German survey data and strengthening headwinds from the euro zone all suggest the case for more QE from the BoE is mounting. Sterling will remain well supported vs the EUR for now given the even worse risks facing the euro, but downside potential in cable is opening up some more.

 Marc Ostwald, Monument Securities: While we note a large drag from inventories on first-uarter GDP, which tends to indicate that ONS statisticians are struggling to identify the source of some spending (be that expansion or contraction), we still think the really striking element is the clear lack of austerity that is evidenced by a whopping 1.6pc quarter-on-quarter increase in government spending.


Philip Shaw, Investec Given the recent construction data it's not surprising to see GDP having been revised down a touch to down 0.3pc in Q1. Our reading is the construction sector was not as weak as the official data suggests, implying that overall the economy performed better than today's release shows. Nonetheless the economy is not recovering properly and with the uncertainty over Europe hanging over the outlook as well our suspicion is the MPC will sanction further QE at some point later on this year.


Nikesh Sawjani, economist at Lloyds: Looking forward ... As a precursor of (second-quarter figures) it's not looking too great. The (Bank of England) minutes suggested the committee is firmly leaving the door open on more QE. The trigger point could be further weakness in the euro or lack of action from EU policy makers. (The GDP revision) probably makes QE a little bit more likely. I think it does raise the prospect of QE marginally, but to be honest i think it was on the table anyway.

Source : www.telegraph.co.uk