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Return to recession is no surprise and is unlikely to unnerve lenders

The UK is back in recession after Q1 data from the Office for National Statistics showed a 0.2% drop in gross domestic product.

It is the second quarter in a row that output has fallen after dropping 0.3% in Q4 2011.

It is a hammer blow to chancellor George Osborne’s economic plans after he predicted that the UK would avoid recession in last month’s Budget.

The construction sector saw a devastating collapse in output of 3% after a 0.2% fall in the last quarter.

And the rate of decline in the production industries slowed, decreasing 0.4% in Q1 2012, following a drop of 1.3% in Q4 2011.

The service industries remained static – increasing 0.1% after falling by the same level in the previous quarter.

Eric Stoclet, chief executive of Crown Mortgage Management, says the economy going into a recession is not a surprise to most people. He says: “With inflation stuck well above wage growth, most consumers are losing purchasing power by the day.

“If one adds consumer deleveraging, both by choice and through lack of sources of credit, a consumer led recovery is not likely.”

He adds that in the current economic environment and with consumers eager to cut their debt levels, finding the elixir of recovery is going to be tricky.

“Keynesian advocates would argue for more government investment in infrastructure but that as well is not forthcoming.”

Paul Hunt, managing director of Phoebus Software, says that for an embattled government, the arrival of the double dip recession is brutal news, but the mortgage lending industry is unlikely to clamber into its shell as a result of the news.

He adds: “Despite battling adverse economic winds, lenders have in the last year increased gross mortgage lending by more than 5%.”

He says that although people complain that gross lending is still below pre-credit crunch levels, they need to remember that lenders could have shut up shop completely.

Hunt says: “The truth is that lenders have shown remarkable confidence in mortgage borrowers and while a return to recession will give that confidence a knock, their activity will continue to be characterised by a proactive and optimistic approach.”

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