Leading economic analysts Markit have said that this morning’s gloomy news on the economy from the Office for National Statistics could deliver a fatal blow to the fragile revival of consumer and business confidence, harm the recovery and even send the UK back into a ‘real’ recession.

Querying whether the UK is really back in recession, Markit said that not for the first time, the official data and survey data are sending conflicting signals. The Purchasing Managers' Index (PMI)surveys produced jointly by Markit and the Chartered Institute of Purchasing and Supply (CIPS) suggest that GDP grew at a robust pace of as  much as 0.5%. The PMI indices, which  cover manufacturing, construction and service sector activity, are used by the bank of England and key economists in the UK and abroad.

Other business surveys besides the PMI have also shown resurgent business confidence in the first quarter, notably surveys from the British Chambers of Commerce and the  Markit/IPA Bellwether survey of marketing executives. The latter show that confidence has hit the highest for nearly two years.

Potential damage to confidence could scupper real recovery

According to Markit, there is “a real sense of déjà vu” around the figures. A similar situation occurred in late-2009, when the PMI surveys indicated that the recession ended in the third quarter. The good news was soon shattered by the initial release GDP data for that period, which indicated a 0.4% contraction and ongoing recession. However, the ONS have since revised that figure and now estimate that GDP rose 0.2%, confirming the PMI's upbeat message of green shoots of recovery. Markit said the GDP revisions suggest first estimates bear little resemblance to final data.

According to Chris Williamson, Chief Economist at Markit:

“As was the case three years ago, there is therefore a worry is that by heralding a double-dip recession, misleading, gloomy official data shatter the revival of consumer and business confidence seen so far this year, and could even drive the economy back into a real recession. “

CBI surprised by latest official GDP figures

The CBI, the UK's leading business organisation, also said it was surprised by the announcement from the ONS that the UK is back in recession after a 0.2% contraction in the economy in the first quarter of the year.

John Cridland, CBI Director-General, said:

“This disappointing news comes as something of a surprise. Since the turn of the year, business confidence has improved and, while still challenging, underlying economic conditions also appear to have strengthened.

“In particular, the weakness of the services sector data does not tally closely with a range of survey indicators suggesting that the sector has been picking up through the first quarter.

“Looking forward, there are indications that the economy is slowly recovering from the blow to confidence and activity which resulted from last autumn’s turmoil in Eurozone financial markets.”