UK has 'one foot back in recession' as GDP falls by 0.2% in Q4

The Office for National Statistics (ONS) has released details of GDP in the UK for the final quarter of 2011 which shows the UK economy contracted by 0.2 per cent fuelling the likelihood that the UK will fall back into recession in 2012.

This means that in the whole of 2012 the UK economy grew by 0.9 per cent.

The figures were worse than most analysts expected with the consensus that the economy would be flat or fall by 0.1 per cent. The news will heap pressure on the Chancellor George Osborne to provide more stimuli to the economy to encourage growth and adopt a different set of policies than ones dominated by cuts and austerity.

The manufacturing and production sectors of the economy contracted fastest and influenced the overall drop as economic activity fell by 1.2 per cent in the final quarter compared to a rise of 0.2 per cent in the third quarter. Output in the construction sector fell by 0.5 per cent, compared to a rise of 0.3 per cent in the third quarter.

Economic activity in the dominant services sector was broadly unchanged from the last quarter, helped by strong activity in the run up to Christmas. Without December’s big monthly improvement the GDP figures may well have been worse.

The ONS reported that the public sector strikes on November 30th were likely to have had an impact on GDP albeit a small one.

Most economists expect a further contraction of the economy in the first quarter of 2012, so it looks increasingly likely that the UK will fall back into recession in three months time.

Howard Archer, Chief UK & European Economist at IHS Global said: “The economy stuck one foot back through the recession door in the fourth quarter of 2011 as GDP contracted 0.2% quarter-on-quarter. We suspect that the second foot will follow in the first quarter of this year as still pressurized and worried consumers limit their spending, business hold back on investment amid a currently very uncertain and worrying outlook, government spending and investment is pared, and muted global economic activity dampens exports.”

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