Triple dip recession looms as GDP shrinks -0.3%
Fears that the UK was heading for a triple dip recession were heightened as the UK’s GDP plummeted by 0.3% in the last quarter of 2012.
Production industries were down by 1.8% while the services sector was flat, although the construction sector grew by 0.3%.
The economy was “close to flat”, according to the Office for National Statistics.
ONS economist Joe Grice said: “The mining and quarrying sector was seriously affected by extended and seasonally late maintenance to the North Sea oil fields - that effect reduced the estimate of GDP by about 0.2%.
“The economy was probably, in underlying terms, close to flat. It extends the pattern that we’ve seen now for some time of a bumpy economy but on a rather sluggish trend.”
However a Treasury spokesman said the news was not a surprise:
“The official forecast was that the UK economy would contract in the last quarter of 2012 so this figure is not unexpected. It confirms what we already knew - that Britain, like many European countries, still faces a very difficult economic situation.
“It underlines what the Chancellor said at the autumn statement and the governor of the Bank of England said this week: while the economy is healing, it is a difficult road.”
Federation of Small Businesses London chairman Steve Warwick said:
“It is disappointing this latest set of figures shows a dip as the economy finds it hard to maintain momentum with the Olympic effect fading. The pattern of recovery has been uneven and marked by ups and downs. External factors have added to the uncertainty, meaning confidence remains fragile and rebalancing the economy is taking longer than expected.
“FSB research showed that small firms are slightly more confident going into 2013 than they were going into 2012. Growth has been forecast in the year, but still below long-term trends. What we need to see is the Government continue with reforms to encourage investment in the economy and to ensure the UK has the flexibility required to take full advantage of the recovery when it comes.”
But other experts warn that the fall was inevitable due to the waning of the Olympic boost the economy. Graeme Leach, Chief Economist at the Institute of Directors, said:
“You can’t see the road ahead through the rear view mirror. The GDP fall was largely attributable to the unwinding of the Olympic effect and so the underlying story is that output is flat. The critical factor is not what the GDP figures did in Q4 but what the broad money supply figures will do in Q1. If the recent slight pick-up in money supply growth can be sustained, the UK economic outlook in 2013 will be better than people expect. So hold back on the doom and gloom.”
This comes after Deputy Prime Minister Nick Clegg admitted the coalition cut infrastructure spending too deeply when it came to power.
Speaking to the House Magazine, he said that infrastructure investment was needed to foster recovery.
“If I’m going to be sort of self-critical, there was this reduction in capital spending when we came into the Coalition Government,” he said.
Following the news, RBS said the UK has had the weakest levels of GDP, with the exception of the World Wars, “since before Victoria ascended to the throne”.
Post-WW1 & WW2 #GDP fell at double-digits rates. Those aside, 2008-12 fall was bigger than any since before Victoria ascended the throne.
— RBS Economic Insight (@RBS_Economics) January 25, 2013