View your shopping bag

Items: (0) £0.00
  • €
  • $
  • £


Shock figures on UK economic growth

UK GDP actually fell by 0.5% in the fourth quarter of 2010, according to figures just released by the Office for National Statistics. This figure has come as a complete shock to economics observers, with most analysts predicting a growth figure of between 0.2% and 0.7%.

Since the recovery started in the final quarter of 2009, we have seen four consecutive quarters of growth, of 0.5%, 0.3%, 1.1% and 0.7%. However, the decline over the previous two quarters has now deteriorated into the economy shrinking in the final quarter of last year.

In the fourth quarter of 2010, output in the production industries increased by 0.9%, whilst output in construction fell by 3.3% and also fell in the service industries by 0.5%. When the sectors are weighted according to their importance in the economy, we see the picture that is revealed in the figure below, with only total production adding a positive measure to growth.

Source: ONS

The ONS has blamed the severe weather during the quarter for adversely hitting economic activity. However, and this is a major point, the ONS said that even if the weather effect had been removed, the figures would still be “showing a flattish picture”.

The Chancellor, George Osborne, rushed out a ‘damage limitation’ statement blaming everything on the cold snap in December. He said: “There is no question of changing a fiscal plan that has established international credibility on the back of one very cold month. That would plunge Britain back into a financial crisis. We will not be blown off course by bad weather.”

This could be construed as being somewhat ‘economical with the truth’ given that the ONS said the figures would have been ‘flattish’ anyway. A flat line on a heart monitor tends to show that the patient is dead. Is this true of the UK economy? We now only need another negative quarter in the first quarter of this year to technically move back into recession. This would be the ‘double dip’ which many economists have been warning about.

The Chancellor says that we will have to continue to take the austerity medicine, but this may well lead to the death of the patient. Can I suggest you read Paul Krugman’s article from yesterday on demand before weighing up the consequences of current government action.

Tags: , , , , ,
Posted in GDP, production, Service Sector

Comments are closed.