UK teeters on brink of new recession

This week's figures could show second quarter of negative growth and make 'double dip' a reality

The UK stands on the verge of a double-dip recession this week as official number-crunchers prepare to give a potentially contentious verdict on the economy's performance during the opening quarter of 2012.

The Office for National Statistics' first estimate of growth, due on Wednesday, is expected to show marginal improvement of 0.1 per cent for the January-March period – although some economists have labelled the figures a "lottery".

The City's forecasts range widely from 0.3 per cent growth to a contraction on the same scale. But the political stakes are high for Chancellor George Osborne because a shock decline would mean the UK economy has shrunk for two consecutive quarters – fulfilling the technical definition of recession – after falling 0.3 per cent late last year.

The growth estimates also follow a difficult week in which the Bank of England has openly cast doubt over the quality of its data, particularly on construction. According to the ONS, the industry showed dramatic declines in December and January, but the figures are not adjusted for seasonal variations.

Construction accounts for a relatively small share of the economy – less than 8 per cent – but a big swing in its numbers could be enough to drag the UK back into the red, particularly after the surprisingly weak manufacturing data in January.

IHS Global Insight's Howard Archer said: "It's a bit of a lottery really, in my opinion, as the datais unadjusted – also there canoften be significant revisions when you get the next month's figures."

The Bank of England is giving little weight to the "perplexing" construction numbers. It is potentially braced for negative official growth figures for the first half of the year as the impact of the Queen's Diamond Jubilee also takes an extra working day away from the April-June period.

The closely watched Chartered Institute of Purchasing & Supply/ Markit activity surveys have been far stronger than the volatile official data and consistent with quarterly growth of around 0.5 per cent.

According to the financial information group Markit, one in three of the ONS's first estimates of growth have been revised by 0.5 per cent or more since 1998. The earliest official estimates – published three weeks after the end of the quarter – are based on just 45 per cent of the data that is used in the final verdict.

James Knightley, a senior UK economist at ING Bank, said: "The ONS is meant to be the arbiter of all this. I don't know why we have to have this first estimate of GDP."