Fears of double-dip recession rise after 0.2% contraction in GDP

Gross domestic product contracted by 0.2% in Q4 2011, sparking fears that a double-dip recession could be on the way.

The contraction marks a sharp slowdown on the 0.6% rise in the previous three months of 2011. If Q1 2012 also contracts, the UK will fall back into recession.

Ben Thompson, managing director of Legal & General Mortgage Club, says: “So much is in the balance at the moment and there can’t have been too many times historically when there has been such a high level of interest in one quarterly set of results.

“Psychologically, the thin margin between growth and decline makes so much of a difference right now in terms of confidence.”

Rupert Watson, head of asset allocation at Skandia Investment Group, says that while the economy is weak he does not think it is about to slide into a deep recession.

He says: “There have been a number of recent developments that point in the direction of positive growth at the start of 2012. First, surveys of business confidence have risen and are consistent with modest positive growth. Second, inflation is likely to fall further with the recent cuts in some energy bills likely to help.

“Finally, there have been signs of an improvement in the eurozone, US and China which should help exports and overall confidence.”