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UK economy suffers 0.5% contraction UK economy suffers 0.5% contraction
(40 minutes later)
The UK's economy suffered a shock contraction in the last three months of 2010, figures have shown.The UK's economy suffered a shock contraction in the last three months of 2010, figures have shown.
The economy shrank by 0.5% in the October-to-December period, the Office for National Statistics (ONS) said.The economy shrank by 0.5% in the October-to-December period, the Office for National Statistics (ONS) said.
The severe weather hit activity in the quarter, but the ONS said even if the weather impact had been excluded, activity would have been "flattish".The severe weather hit activity in the quarter, but the ONS said even if the weather impact had been excluded, activity would have been "flattish".
The contraction follows growth of 0.7% in the previous three months and 1.1% in the second quarter of 2010.The contraction follows growth of 0.7% in the previous three months and 1.1% in the second quarter of 2010.
The figures are set to raise concerns over prospects for the economy, with large public spending cuts expected to come in this year.The figures are set to raise concerns over prospects for the economy, with large public spending cuts expected to come in this year.
But Chancellor George Osborne said the government would not change its austerity programme.But Chancellor George Osborne said the government would not change its austerity programme.
"These are obviously disappointing numbers, but the ONS has made it very clear that the fall in GDP was driven by the terrible weather in December," he said in a statement."These are obviously disappointing numbers, but the ONS has made it very clear that the fall in GDP was driven by the terrible weather in December," he said in a statement.
"There is no question of changing a fiscal plan that has established international credibility on the back of one very cold month. That would plunge Britain back into a financial crisis. We will not be blown off course by bad weather.""There is no question of changing a fiscal plan that has established international credibility on the back of one very cold month. That would plunge Britain back into a financial crisis. We will not be blown off course by bad weather."
The release is a first estimate for the quarter from the ONS and is subject to revision. The statistics body will publish two further updates at monthly intervals.The release is a first estimate for the quarter from the ONS and is subject to revision. The statistics body will publish two further updates at monthly intervals.
'Horrendous'
The contraction took economists by surprise, as forecasts had been for growth of between 0.2% and 0.6%.
The construction industry was a large contributor to the fall, with activity decreasing by 3.3% in the quarter.
"This is a horrendous figure. An absolute disaster for the economy. We knew that retail sales were heavily affected and that services output would be weak, but the collapse in construction was a major contributor to the downside surprise," said Hetal Mehta from Daiwa Capital.
"While today's GDP figures are backward looking, they are nevertheless crucial to understanding the resilience of the economy to shocks. It seems that the economy is incredibly vulnerable. And with the fiscal tightening yet to fully bite, we will have to brace ourselves for a bumpy ride."
The sector that saw the most growth was manufacturing, which expanded by 1.4%.
"Manufacturing remains the one bright spot on the landscape clouded with uncertainty but there are widespread challenges at home and abroad that could still dent growth this year," said Jeegar Kakkad from the manufacturers' organisation, the EEF.