Recession! Or Is It? And Does It Matter?

It's back. The dreaded 'R' word. The economy already shrank in the final three months of 2011 but only after a further three months of shrinkage is the UK officially back in recession.

The first "double dip" since the 1970s had been widely feared, although in recent months those fears had waned, so many will be surprised that the recession has returned.

Or has it? Officially the answer is yes but there is a chorus of voices among economists, even some within the Bank of England, who brazenly question the government's official statisticians at the Office for National Statistics.

They point to a host of upbeat surveys from companies in the construction sector, where the ONS reported a 3% decline in Q1, that suggest things are better than the official figures have declared.

Howard Archer, chief UK economist at IHS Global Insight, said: "The economy is undeniably still in a hard place, but the evidence overall suggests that it managed to achieve modest expansion in the first quarter.

"Survey evidence relating to construction (especially), manufacturing and services activity is markedly better than the hard data, while retail sales growth of 0.8% quarter-on-quarter and recent signs of a stabilising labour market also suggest that the economy is expanding - albeit modestly."

The Office for National Statistics has defended its research saying it "double and treble checked" the responses from the 8,000 construction companies it surveyed.

But it's worth pointing out that the latest official data is the first of three estimates of growth in Q1, based on 42% of the necessary data and within a 0.2% margin of error.

So conceivably, the figure could ultimately be revised up to 0% growth meaning it wasn't a recession after all, or revised down to -0.4%, meaning the recession is even worse.

Mr Archer added: "For what it's worth, we strongly suspect that some time down the line the GDP data will be revised up to show modest growth in the first quarter, but by then the recession headlines will have been written."

You can't call such criticism "optimistic" because growth forecasts of between 0.5% and the official 0.7% for 2012 are pretty paltry but other economists are certainly more cynical.

Capital Economics said the Q1 figure supports her forecast that the economy will ultimately shrink by 0.5% throughout the year.

Capital's chief economist, Vicky Redwood, said: "The drop in construction was smaller than anticipated and even without this, output would have done no better than stagnate.

"The main disappointment was the meagre 0.1% rise in services output in Q1 - the surveys had pointed to services growth of 0.5% or more. "

So is there any room for optimism?

Well if you think of 2008's peak GDP figure as 100, sadly the Q1 2012 figure of 98.1 is identical to Q1 2011 so all progress over the past year has been erased. But we are still better off than Q1 2010 when the figure was 96.6.

Arguably, the materialisation of the "double dip" simply reflects the mantra from most experts that recoveries from debt fuelled economic crises are inevitably slow and erratic as consumers and businesses use spare cash to pay off their debts.

Deloitte's chief UK economist, Ian Stewart, told Sky News that there's no cause for panic: "I think we're in for a choppy recovery and it's quite possible we're going to see even more 'down quarters' for GDP."

But there is a danger that the very utterance of the 'R' word can itself cause a psychological effect on businesses and consumers that could hamper growth in a year when it's already forecast to be very, very weak.

Ian Stewart added: "The economic impact of the number, whether it's 0.1 up or down, is probably not as great as the psychological or political impact of it.

"The worry at a time when consumer sentiment is fragile is that being tipped back into recession, the perception that the recession is back - is just another factor weighing on sentiment."