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| UK GDP fell faster than previously estimated in fourth quarter, ONS says | |
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| Britain's economy was even weaker than expected at the end of last year, underlining the country's struggle to avoid another recession. | Britain's economy was even weaker than expected at the end of last year, underlining the country's struggle to avoid another recession. |
| GDP fell 0.3% in the fourth quarter, more than the 0.2% drop previously estimated by the Office for National Statistics. The downgrade was mainly prompted by weakness in the country's dominant services sector. | GDP fell 0.3% in the fourth quarter, more than the 0.2% drop previously estimated by the Office for National Statistics. The downgrade was mainly prompted by weakness in the country's dominant services sector. |
| Economists had not been expecting any change to the 0.2% fall and the news that Britain's economy went into the new year in an even worse state will raise fears it could notch up a technical recession – defined as two consecutive quarters of contraction. | Economists had not been expecting any change to the 0.2% fall and the news that Britain's economy went into the new year in an even worse state will raise fears it could notch up a technical recession – defined as two consecutive quarters of contraction. |
| The pound fell to a two-week low against the euro on the surprise downgrade, which left growth for the year as a whole at just 0.7%, down from 0.8% pencilled in previously. | The pound fell to a two-week low against the euro on the surprise downgrade, which left growth for the year as a whole at just 0.7%, down from 0.8% pencilled in previously. |
| "Sterling hit the deck on the back of this downward revision. And it could be a long count before it gets back up on its feet," said Jason Conibear at foreign exchange group Cambridge Mercantile. | "Sterling hit the deck on the back of this downward revision. And it could be a long count before it gets back up on its feet," said Jason Conibear at foreign exchange group Cambridge Mercantile. |
| "What this revision to the fourth-quarter data reinforces is that the UK economy is febrile at best. The consensus appears to be that we will avoid a technical recession due to an improvement during the first quarter of this year but there's still a very recessionary feel to the current climate." | "What this revision to the fourth-quarter data reinforces is that the UK economy is febrile at best. The consensus appears to be that we will avoid a technical recession due to an improvement during the first quarter of this year but there's still a very recessionary feel to the current climate." |
| The signs from business surveys and much of the official data so far for this first quarter have been taken as evidence of at least a small new-year bounce back. But there are widespread doubts over whether that can be sustained. Economists cite many headwinds facing the UK economy, including high oil prices, a government austerity drive and the sovereign debt crisis in the eurozone. | The signs from business surveys and much of the official data so far for this first quarter have been taken as evidence of at least a small new-year bounce back. But there are widespread doubts over whether that can be sustained. Economists cite many headwinds facing the UK economy, including high oil prices, a government austerity drive and the sovereign debt crisis in the eurozone. |
| The outlook for households remains tough. Underscoring fears that consumers are being squeezed by high inflation and strains from government cuts and high unemployment, disposable incomes in 2011 slumped at their fastest pace for more than 30 years, the ONS said. They were down 1.2%, the biggest fall since 1977. | The outlook for households remains tough. Underscoring fears that consumers are being squeezed by high inflation and strains from government cuts and high unemployment, disposable incomes in 2011 slumped at their fastest pace for more than 30 years, the ONS said. They were down 1.2%, the biggest fall since 1977. |
| In the fourth quarter household spending picked up to grow by 0.4%, offsetting the 0.3% fall in the previous quarter, but that came as people ate into their savings. | In the fourth quarter household spending picked up to grow by 0.4%, offsetting the 0.3% fall in the previous quarter, but that came as people ate into their savings. |
| The breakdown of the GDP data also showed that while service sector weakness prompted the downward revision, the overall drop was led by a fall in industrial production as manufacturing shrank. There was also a fall in construction output as well as a dip in service sector output. | The breakdown of the GDP data also showed that while service sector weakness prompted the downward revision, the overall drop was led by a fall in industrial production as manufacturing shrank. There was also a fall in construction output as well as a dip in service sector output. |
| Government spending, exports and household consumption grew, but economists warned that pattern had little chance of holding up. | Government spending, exports and household consumption grew, but economists warned that pattern had little chance of holding up. |
| "The government purse strings are being tightened, growth is deteriorating in key export markets, with the eurozone now likely to be in another recession, and revised retail sales data have signalled a far weaker start to the year than previously thought, raising concerns that households are continuing to retrench amid worries about the economy, jobs and rising prices," said Chris Williamson, chief economist at Markit. | "The government purse strings are being tightened, growth is deteriorating in key export markets, with the eurozone now likely to be in another recession, and revised retail sales data have signalled a far weaker start to the year than previously thought, raising concerns that households are continuing to retrench amid worries about the economy, jobs and rising prices," said Chris Williamson, chief economist at Markit. |
| Williamson said the closely watched purchasing managers business surveys (PMIs) so far for 2012 pointed to "a meagre 0.3% expansion, which would merely make up for the lost output in the final quarter of last year". | Williamson said the closely watched purchasing managers business surveys (PMIs) so far for 2012 pointed to "a meagre 0.3% expansion, which would merely make up for the lost output in the final quarter of last year". |
| Other economists echoed that prediction of some recovery at the start of this year, albeit weak and hard to sustain. | Other economists echoed that prediction of some recovery at the start of this year, albeit weak and hard to sustain. |
| "It looks as though the economy has managed to expand in the first quarter. Nonetheless, we still think that there are a number of reasons to doubt that the recovery can maintain the recent acceleration," said Vicky Redwood, chief UK economist at Capital Economics. | "It looks as though the economy has managed to expand in the first quarter. Nonetheless, we still think that there are a number of reasons to doubt that the recovery can maintain the recent acceleration," said Vicky Redwood, chief UK economist at Capital Economics. |