The latest GDP figures have just been released for the final quarter of 2010, from September to December, and they show an unexpected negative growth figure of 0.5 per cent.
The figures show that the UK economy has stopped growing despite predictions from most commentators that they would show growth of between 0.2 and 0.6 per cent.
The negative growth in GDP will renew fears of stagnation and a double-dip recession. Adverse winter weather in December is being blamed for the lower than expected GDP measure.
The construction industry was particularly badly affected. Joe Grice, a spokesman for the Office for National Statistics, (ONS) said: “Output in the construction industry fell by 3.3 per cent.”
The services sector fell by 0.5 per cent but production industries grew by 0.9 per cent. The figures are a first estimate and they are a little more uncertain than normal because data collected by the ONS in the third month is not always complete.
This is particularly true with this quarters figures because the snow affected the third month, December, that was being reported on. The ONS tried to counter this by chasing up responses and giving respondents more time to complete their records.
The figures could be revised up or down and the usual margin of error is 0.2 per cent either way. However, the margin of error could be slightly wider with this quarter’s GDP figures because of the affect of the winter weather.
The previous two quarters GDP figures showed 1.1 per cent growth in the second quarter of 2010 and 0.7 per cent growth in the third quarter of 2010.
Despite the affect of the snow on the economy, negative growth is a particular surprise given the rate of inflation and will be a major concern for the government.
The GDP report links to employment data from last week that showed fairly negative labour market growth that are not consistent with the government’s aim of job creation.
The negative growth in the UK economy is likely to dampen the appetite of the Bank of England to raise interest rates, though the high level of inflation means that the Bank of England will need to weigh up strong conflicting arguments about the impact of inflation against the dangers to the economy that higher interest rates would cause.