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| Eurozone crisis live: UK economy shrank more than expected in final quarter | Eurozone crisis live: UK economy shrank more than expected in final quarter |
| (40 minutes later) | |
| 10.34am: Ed Balls, shadow chancellor, says this morning's GDP data is "very worrying news", and shows that the UK economy has effectively flatlined since the government's spending review of October 2010 | |
| Balls said: | |
| At the start of 2012 our economy should be doing more than just recovering the lost output at the end of last year. Months and years of flatlining or slow growth will make it harder to get the deficit down and cause long-term damage to our economy. | |
| There have to be tough decisions on tax, spending and pay, but raising taxes and cutting spending too far and too fast has backfired. We need a real plan for jobs and growth, like Labour's five point plan, to get our economy moving again and get Britain back to work. That is how we will get our deficit down in a fairer, better way. | |
| 10.16am: This graph shows how UK GDP fell sharply, then rose again, and then dipped back, since the financial crisis began: | |
| The lighter blue bars show the first estimate of GDP, typically issued less than a month after the quarter has ended. The final revision (such as today's data) includes more information and is thus more accurate. | |
| 9.54am: Here's some early reaction to this morning's GDP data from City analysts: | 9.54am: Here's some early reaction to this morning's GDP data from City analysts: |
| Jonathan Portes, director of the National Institute of Economic and Social Research (NIESR): | Jonathan Portes, director of the National Institute of Economic and Social Research (NIESR): |
| We knew the last three months of last year were pretty bad, and today's figures show they were slightly worse than we thought. | We knew the last three months of last year were pretty bad, and today's figures show they were slightly worse than we thought. |
| There has clearly been some pick-up in the early months of this year...but it does emphasise what a bad year 2011 was for the UK economy. | There has clearly been some pick-up in the early months of this year...but it does emphasise what a bad year 2011 was for the UK economy. |
| Vicky Redwood of Capital Economics | |
| The slight downward revision to GDP in Q4 is disappointing, although of course this is fairly old news now and it looks as though the economy recovered somewhat in the first quarter. | |
| Jeremy Cook, chief economist at World First foreign exchange | Jeremy Cook, chief economist at World First foreign exchange |
| Growth has been revised lower on services numbers and this means that we must be slightly more circumspect when looking at Q1, given increases in energy prices and the likely dampening effect that this will have on household spending. Even though this figure has been revised lower, we do however believe that we can now attribute this to being a slight blip. Business surveys such as the recent Purchasing Manager surveys have shown that Q1 should be growing at around a 0.3/0.4% pace, although we would like to see more in the form of business investment, which fell in Q4 by 3.3%. Hopefully the recent Budget will give that a prod in the right direction. The UK growth profile looks to continue to "bump along the bottom" in 2012 with no single quarter expected by us to print over 0.5%. | Growth has been revised lower on services numbers and this means that we must be slightly more circumspect when looking at Q1, given increases in energy prices and the likely dampening effect that this will have on household spending. Even though this figure has been revised lower, we do however believe that we can now attribute this to being a slight blip. Business surveys such as the recent Purchasing Manager surveys have shown that Q1 should be growing at around a 0.3/0.4% pace, although we would like to see more in the form of business investment, which fell in Q4 by 3.3%. Hopefully the recent Budget will give that a prod in the right direction. The UK growth profile looks to continue to "bump along the bottom" in 2012 with no single quarter expected by us to print over 0.5%. |
| 9.48am: Here's the details of this morning's UK GDP data for the final three months of 2011. | 9.48am: Here's the details of this morning's UK GDP data for the final three months of 2011. |
Industrial production: fell by 1.3% />Construction industry: fell by 0.2% | Services sector output: fell by 0.1% quarter-on-quarter, Industrial production: fell by 1.3% q/q (inc. a 0.7% drop in manufacturing output) />Construction industry: fell by 0.2% q/q |
| Consumer spending rose by 0.4% q/q />Exports grew by 1.6% q/q />Households' real disposable income fell 0.2% q/q. | |
| This all added up to a 0.3% decline in overall GDP. | |
| 9.42am: The most startling fact in this morning's UK GDP data is that household disposable income fell by 1.2% during 2011. | 9.42am: The most startling fact in this morning's UK GDP data is that household disposable income fell by 1.2% during 2011. |
| According to the Office for National Statistics, that's the biggest annual decline since 1977. | According to the Office for National Statistics, that's the biggest annual decline since 1977. |
| With the UK economy managing only meagre growth through the last year (GDP grow by just 0.7% during the 12 months), it underlines the weak position of the UK, even though it is likely to dodge a double-dip recession. | With the UK economy managing only meagre growth through the last year (GDP grow by just 0.7% during the 12 months), it underlines the weak position of the UK, even though it is likely to dodge a double-dip recession. |
| 9.38am: The pound has fallen almost half a cent against the US dollar following the news that the UK econony contracted by 0.3% in the last quarter. It just hit a low of $1.5904. | 9.38am: The pound has fallen almost half a cent against the US dollar following the news that the UK econony contracted by 0.3% in the last quarter. It just hit a low of $1.5904. |
| Sterling also hit a two-week low against the euro, to €1.191. That means one euro is worth 83.96p. | Sterling also hit a two-week low against the euro, to €1.191. That means one euro is worth 83.96p. |
| 9.30am: Breaking news -- the UK economy shrank by 0.3% in the last three months of 2011, not 0.2% as previously estimated. | 9.30am: Breaking news -- the UK economy shrank by 0.3% in the last three months of 2011, not 0.2% as previously estimated. |
| Announcing the downward revision, the Office for National Statistics said that transport, communication, business services and financial sectors all performed worse than originally thought. | Announcing the downward revision, the Office for National Statistics said that transport, communication, business services and financial sectors all performed worse than originally thought. |
| 9.23am: Right on cue, Citigroup has undermined Monti's claim that worst of the eurozone crisis is behind us, by predicting that Spain may need international help by the end of 2012. | 9.23am: Right on cue, Citigroup has undermined Monti's claim that worst of the eurozone crisis is behind us, by predicting that Spain may need international help by the end of 2012. |
| In a research note published this morning, Citi warned that Spain could only avoid a bailout through "more radical measures" than are currently on the table. It warned that the Spanish government may lack the financial resources to recapitalise its banks. | In a research note published this morning, Citi warned that Spain could only avoid a bailout through "more radical measures" than are currently on the table. It warned that the Spanish government may lack the financial resources to recapitalise its banks. |
| Spain's banks reportedly hold €2.4 trillion of debts on their books, leaving them extremely exposed to losses following the collapse of the country's property sector in recent years. | Spain's banks reportedly hold €2.4 trillion of debts on their books, leaving them extremely exposed to losses following the collapse of the country's property sector in recent years. |
| 9.05am: Italian business confidence figures released in the last few minutes show that firms across Italy are slightly more optimistic about the future. | 9.05am: Italian business confidence figures released in the last few minutes show that firms across Italy are slightly more optimistic about the future. |
| ISTAT's business morale index inched up to 92.1 in March, up from February's two-year low of 91.7. Encouraging, but still a rather low figure that doesn't really back up Mario Monti's claim that the crisis is 'almost over'.... | ISTAT's business morale index inched up to 92.1 in March, up from February's two-year low of 91.7. Encouraging, but still a rather low figure that doesn't really back up Mario Monti's claim that the crisis is 'almost over'.... |
| 8.55am: EU president Herman Van Rompuy has announced over Twitter that Europe will take a final decision on the size of its firewall by the end of this week: | 8.55am: EU president Herman Van Rompuy has announced over Twitter that Europe will take a final decision on the size of its firewall by the end of this week: |
| A decision on the adequacy of the #EFSF / #ESM firewall will be taken by the end of the week. #seoul | A decision on the adequacy of the #EFSF / #ESM firewall will be taken by the end of the week. #seoul |
| — Herman Van Rompuy (@euHvR) March 28, 2012 | — Herman Van Rompuy (@euHvR) March 28, 2012 |
| The firewall is the top item for discussion at the meeting of eurozone finance ministers, which begin on Friday. | The firewall is the top item for discussion at the meeting of eurozone finance ministers, which begin on Friday. |
| 8.48am: Just breaking on the news wires -- Dutch finance minister Jan Kees de Jager has declined to comment on rumours that he threatend to resign if his government failed to cut its budget deficit to 3% of GDP in 2013 (as demanded under the new Fiscal Pact). | 8.48am: Just breaking on the news wires -- Dutch finance minister Jan Kees de Jager has declined to comment on rumours that he threatend to resign if his government failed to cut its budget deficit to 3% of GDP in 2013 (as demanded under the new Fiscal Pact). |
| Developing.... | Developing.... |
| 8.31am: Mario Monti's claim that the euro crisis is almost over (see 8.17am) has been swiftly challenged in the City. | 8.31am: Mario Monti's claim that the euro crisis is almost over (see 8.17am) has been swiftly challenged in the City. |
| Elisabeth Afseth of Investec pointed out that Italian bond yields hit their highest level of the month yesterday, with the 10-year ending 9 basis points higher at 5.11%. It's risen a little higher this morning, too. | Elisabeth Afseth of Investec pointed out that Italian bond yields hit their highest level of the month yesterday, with the 10-year ending 9 basis points higher at 5.11%. It's risen a little higher this morning, too. |
| Afseth added that speculation that Portugal will need a second package of financial help will intensify through 2012, despite German finance minister Wolfgang Schäuble stating yesterday that no further bailouts would be needed within the next three months. She said: | Afseth added that speculation that Portugal will need a second package of financial help will intensify through 2012, despite German finance minister Wolfgang Schäuble stating yesterday that no further bailouts would be needed within the next three months. She said: |
| Schäuble is most likely to be right in his prediction of no bailout in next 3 months, but that doesn't give me much confidence that the crisis is over. | Schäuble is most likely to be right in his prediction of no bailout in next 3 months, but that doesn't give me much confidence that the crisis is over. |
| Chris Adams, the Financial Times's Markets Editor, said he was concerned that Monti's comments suggest EU leaders have become dangerously relaxed. | Chris Adams, the Financial Times's Markets Editor, said he was concerned that Monti's comments suggest EU leaders have become dangerously relaxed. |
| A dollop of soothing balm from the ECB and Italy's Monti declares eurozone crisis "almost over". All I see is rising danger of complacency. | A dollop of soothing balm from the ECB and Italy's Monti declares eurozone crisis "almost over". All I see is rising danger of complacency. |
| — Chris Adams (@ChrisAdamsMKTS) March 28, 2012 | — Chris Adams (@ChrisAdamsMKTS) March 28, 2012 |
| That 'soothing balm' was the European Central Bank's offer of around €1 trillion in cheap loans, the 'Long Term Refinancing Operation'. LTRO, though, can only offer temporary relief to the eurozone. And indeed, there are fears that the ECB has simply stored up more problems for the future (by encouraging banks to take on too much risky sovereign debt, for example). | That 'soothing balm' was the European Central Bank's offer of around €1 trillion in cheap loans, the 'Long Term Refinancing Operation'. LTRO, though, can only offer temporary relief to the eurozone. And indeed, there are fears that the ECB has simply stored up more problems for the future (by encouraging banks to take on too much risky sovereign debt, for example). |
| 8.17am: Mario Monti struck an upbeat tone in Japan today, telling an audience in Tokyo that: | 8.17am: Mario Monti struck an upbeat tone in Japan today, telling an audience in Tokyo that: |
| The euro zone has gone through a huge crisis. | The euro zone has gone through a huge crisis. |
| I believe that this crisis is now almost over. | I believe that this crisis is now almost over. |
| Monti cited the agreement of Greece's second aid package, the austerity budget being drawn up in Spain, and his own work in Italy since taking power in November. | Monti cited the agreement of Greece's second aid package, the austerity budget being drawn up in Spain, and his own work in Italy since taking power in November. |
| Interestingly, Monti also pointed the finger of blame at Berlin and Paris for helping to create the crisis. He said Germany and France's failure to stick to the original fiscal rules had set a dangerously bad example to other countries. | Interestingly, Monti also pointed the finger of blame at Berlin and Paris for helping to create the crisis. He said Germany and France's failure to stick to the original fiscal rules had set a dangerously bad example to other countries. |
| AFP has the quotes from Monti: | AFP has the quotes from Monti: |
| The story goes back to 2003 (and) the still almost infant life of the euro...It was in fact Germany and France that were loose concerning the public deficits and debts. | The story goes back to 2003 (and) the still almost infant life of the euro...It was in fact Germany and France that were loose concerning the public deficits and debts. |
| As readers may remember, neither country faced any sanctions for breaking the terms of the original Stability and Growth Pact (which said countries should not run deficits above 3%). And thus, the seeds for future excess deficits were sowed. As Monti put it: | As readers may remember, neither country faced any sanctions for breaking the terms of the original Stability and Growth Pact (which said countries should not run deficits above 3%). And thus, the seeds for future excess deficits were sowed. As Monti put it: |
| Of course if the father and mother of the eurozone are violating the rules, you could not expect .. (countries such as) Greece to be compliant. | Of course if the father and mother of the eurozone are violating the rules, you could not expect .. (countries such as) Greece to be compliant. |
| 8.09am: We've already had one piece of economic data this morning -- Paris's national statistics office has confirmed that the French economy grew by 0.2% in the final three months of 2011. | 8.09am: We've already had one piece of economic data this morning -- Paris's national statistics office has confirmed that the French economy grew by 0.2% in the final three months of 2011. |
| That means that France defied the wider economic gloom in Europe. The eurozone economy shrank by 0.3% during that quarter, with even Germany contracting (by 0.2%). | That means that France defied the wider economic gloom in Europe. The eurozone economy shrank by 0.3% during that quarter, with even Germany contracting (by 0.2%). |
| 8.07am: Here's today's agenda. | 8.07am: Here's today's agenda. |
| The most significant economic data today may be the latest German inflation figures. Economists expect a small fall, to 2.3% this month from 2.5% in February. The UK GDP data will also be closely watched in the City. | The most significant economic data today may be the latest German inflation figures. Economists expect a small fall, to 2.3% this month from 2.5% in February. The UK GDP data will also be closely watched in the City. |
| • Mario Monti in Japan - all day • Italian Business Confidence for March: 9am BST / 10am CET • UK GDP for Q4 2011 (final reading): 9.30am BST • German consumer prices index for March: 1pm BST / 2pm CET • US durable goods orders for February - 1.30 BST / 8.30am EST | • Mario Monti in Japan - all day • Italian Business Confidence for March: 9am BST / 10am CET • UK GDP for Q4 2011 (final reading): 9.30am BST • German consumer prices index for March: 1pm BST / 2pm CET • US durable goods orders for February - 1.30 BST / 8.30am EST |
| In the bond markets, the Italian government is looking to sell €8.5bn of six-month bills. | In the bond markets, the Italian government is looking to sell €8.5bn of six-month bills. |
| 8.00am: Good morning all, and welcome to our rolling coverage of the eurozone crisis … | 8.00am: Good morning all, and welcome to our rolling coverage of the eurozone crisis … |
| … a crisis that has almost run its course, according to a decidedly upbeat Mario Monti. Earlier this morning, the Italian prime minister told an audience in Tokyo that the eurozone's worst problems were now behind it. | … a crisis that has almost run its course, according to a decidedly upbeat Mario Monti. Earlier this morning, the Italian prime minister told an audience in Tokyo that the eurozone's worst problems were now behind it. |
| According to local reports, Monti also pinned some of the blame for the euro's woes on Germany and France – we'll have full details shortly. | According to local reports, Monti also pinned some of the blame for the euro's woes on Germany and France – we'll have full details shortly. |
| Monti's comments come just hours after the OECD warned that Europe needs "the mother of all firewalls" to contain the debt crisis. | Monti's comments come just hours after the OECD warned that Europe needs "the mother of all firewalls" to contain the debt crisis. |
| Elsewhere, Spain remains under the cosh as its government pushes on with a tough austerity budget, due on Friday. | Elsewhere, Spain remains under the cosh as its government pushes on with a tough austerity budget, due on Friday. |
| And in the UK, final GDP data will show whether the economy did shrink by 0.2% in the last three months of 2011. | And in the UK, final GDP data will show whether the economy did shrink by 0.2% in the last three months of 2011. |