British Economy Contracted 0.3% in Fourth Quarter
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Version 0 of 1. LONDON — Britain’s economy shrank 0.3 percent at the end of 2012, according to data released Friday, with a North Sea oil production slump, lower factory output and a hangover from the London Olympics pushing it perilously close to slipping into recession for a third time since 2008. The figures from the Office for National Statistics were sharply lower than the 0.1 percent decline forecast by analysts. The news is a blow for Britain’s Conservative-led government, which a day earlier defended its austerity program against criticism from the International Monetary Fund. The government needs solid growth to meet its budget targets, keep a triple-A debt rating and bolster its chances of winning a 2015 election. The pound fell to its lowest in 13-1/2 months against the euro and hit a five-month low against the dollar in response to the data. The euro was also buoyed by a stronger-than-expected survey of German business sentiment by the Ifo Institute. “There are no positive takeaways,” said Lee Hopley, chief economist for the EEF manufacturers’ association. “Even assuming some unwinding of activity from the Olympics boost in the previous quarter, this still leaves no real signs of underlying growth in the economy.” Britain’s economy is now 3.3 percent smaller than its peak in the first quarter of 2008, having recovered only about half the output lost during the financial crisis — a worse performance than most other major economies. The country slipped back into recession in the last three months of 2011 and only emerged from it in the third quarter of 2012, after a lift from the London Olympics. After a bout of snowy weather in January — which is likely to have depressed spending and output — the risk is that the economy will continue to shrink in the first three months of this year, technically pushing it into a rare triple-dip recession. Britain’s biggest department store group, John Lewis, said Friday that snow was responsible for its sales growth stalling in the latest week. In economic terms, the picture remains one of stagnation over the past year. But politically, the latest dip in national output is more incendiary. “Stagnation is going to be the theme for the next couple of quarters or so,” said Rob Wood at Berenberg Bank. The chancellor of the Exchequer, George Osborne, stuck fast to his austerity plan on Thursday, rejecting suggestions from the International Monetary Fund’s chief economist that he should consider slowing his deficit reduction plan. Prime Minister David Cameron this week staked his political future on offering a referendum on Britain’s place in the European Union. But it is Mr. Osborne’s gamble that austerity will deliver strong growth before a 2015 election that will be crucial for his Conservative Party’s chance of winning. After the figures were released, Mr. Osborne conceded that Britain was still in a “very difficult economic situation”. “We face problems at home with the debts built up over many years and problems abroad, with the euro zone - where we export many of our products - deep in recession,” he added. The leader of the Liberal Democrats, Nick Clegg, has said the coalition government of which his party is a part had cut investment spending too rapidly. The finance spokesman of the opposition Labour Party, Ed Balls, responded to the data by saying the government was complacent. “David Cameron and George Osborne have been asleep at the wheel. They’ve spent the last six months obsessing about a referendum in five years time, not focusing on the problems in our economy today,” he said. The governor of the Bank of England, Mervyn A. King, has said he expects no more than a “gentle recovery” this year. This week the I.M.F. cut its 2013 forecast for British economic growth to 1.0 percent from 1.1 percent predicted in October. Economists and business groups, however, warn that even such lackluster growth could be derailed by a hit to business and consumer confidence from talk of a triple-dip recession. The biggest factor in the fourth-quarter decline in G.D.P. was a 10.2 percent drop in mining and quarrying output, the largest since records began in 1997, driven by disruption from extended maintenance affecting North Sea oil and gas fields. This knocked 0.18 percent off G.D.P., while slightly smaller amounts of damage were done by declines in factory output and in the “government and other services” category, where the Olympics had lifted sports and recreation services in the third quarter. Friday’s figures showed output in the service sector, which makes up more than three quarters of G.D.P., was flat in the fourth quarter. Industrial output was 1.8 percent lower. |