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UK economy shrinks by 0.2%

Economic activity shrank by 0.2% in the final quarter of 2011, figures from the Office for National Statistics show.

The figures represent a preliminary estimate, and could be revised up or down by 0.2%.

Speaking to the BBC, the Chancellor, George Osbourne, said the outcome was disappointing, but not surprising.

He said: “They are not entirely unexpected because of what’s happening in the world and what’s happening in the eurozone crisis.

“The truth is that dealing with those problems is made more difficult by the situation in the eurozone.”

The drop follows figures for the third quarter of 2011 which show GDP expanded by 0.6%.

It is the quarterly fall in GDP since the first quarter of 2012, when the country experience a 0.5% drop.

The Forum of Private Business’ Chief Executive, Phil Orford, said: “There’s no escaping it, the figures are disappointing.

“But it’s important to put it into perspective. Quarter 4 in 2010 saw a significantly higher contraction of 0.5%, which was attributed to the snowy weather, followed the next quarter by positive growth.

“While there wasn’t a repeat of the weather for Q4 2011, there was the equally damaging eurozone debt storm which hugely dented confidence among consumers and businesses. People are erring on the side of caution and are holding back on spending and growth plans.

“You can also factor in to the equation two days of public sector industrial action, and a 4% drop in energy consumption due to the mild autumn. None of these helped.

“So it’s by no means certain that the economy will continue with negative growth for this current quarter, although if there is any growth it will be small.”

During Prime Ministers’ question time this afternoon, Ed Milliband accused the Government of leading with smug complacency, and challenged the notion that the eurozone crisis was to blame, suggesting that the economy was “flatlining” well before this.

Graeme Leach, Chief Economist at the Institute of Directors, commented: “The tightrope walk between recession and recovery continues. We’ve taken one step towards a double-dip recession, and it’s now probably 50-50 as to whether we’ll take the second, with a fall in output this quarter as well.

“It’s important to stress that the 0.2% fall in GDP is not large and could be reversed as QE2 works through the economy.

“But even if output does increase in Q1 we’ll continue to experience the feel-bad jobless recovery for some time yet. Indeed, the combination of falling output and today’s MPC minutes suggest QE2 could be further expanded in February.

“The tipping point for recession or recovery remains economic developments in the eurozone. If the euro crisis gets worse, sustaining UK recovery looks almost impossible.”

This was posted in Bdaily's Members' News section by Tom Keighley .