GDP fall greater than estimated

28 Mar 12
The UK economy contracted more in the last quarter of 2011 than initially estimated, the Office for National Statistics said today.
By Richard Johnstone | 28 March 2012

The UK economy contracted more in the last quarter of 2011 than initially estimated, the Office for National Statistics said today.

Revised figures show that UK gross domestic product shrank by 0.3% in the three months between October and December last year, down from the initial estimate of a 0.2% decline.

Output from the production sector suffered the greatest fall in the quarter, down by 1.3%, including a fall of 0.7% from manufacturing industries. Construction sector output also fell, by 0.2%, and there was a decrease of 0.1% in the service sector.

However, the ONS calculates that output from government and other services, including public spending, rose by 0.4% in the same period, due to increases in health expenditure.

The report also revised down total economic growth for all of 2011 from 0.8% to 0.7%.

Following the release of the updated figures, economists were split on whether a second consecutive contraction in the first quarter of 2012 was now more likely. This would mean the UK economy was in recession.

Azad Zangana, European economist at the Schroders asset management firm, said that the downgrade was ‘significantly worse than expected and shows weaker momentum heading into 2012’.

He added: ‘Our view is that the weakness highlighted in this release, in combination with the poor production and retail sales data so far, means it is more likely than not that the economy also contracted in the first three months of this year, which would put the UK in a technical recession.’

He called for the Bank of England to respond by increasing its quantitative easing asset buying programme, which was boosted by £50bn last month.

However, the Centre for Economics and Business Research said that a ‘flurry of positive economic data and encouraging policy announcements have indicated that the UK is likely to avoid technical recession in 2012’.

Daniel Solomon, an economist at the CEBR, said: ‘Currently, we expect GDP to grow by 0.4% over the year. This is due to domestic and foreign loose monetary policy and falling inflation.

‘Encouraging monetary policy at home and abroad, with a modest re-stabilisation of household finances, mean that the UK should avoid recession this year. This is an encouraging result given how likely a double-dip appeared to be at the end of last year.’

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