Fears of new slump after GDP shrinks

 
Tim Wallace
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GDP FELL in the final three months of 2011, according to early estimates from the Office for National Statistics, published yesterday.

Economic output appears to have declined by 0.2 per cent, with 40 per cent of available data analysed so far.

Such a decline leaves GDP growth for the whole of 2011 at 0.9 per cent.

Prime Minister David Cameron blamed the Eurozone crisis and squeezed household incomes for the decline, describing the figures as “disappointing” while attacking Labour’s demands for more spending.

Opposition leader Ed Miliband hit out at Cameron, describing him as “a byword for self-satisfied, smug complacency” and urging him to abandon the current deficit reduction plan on the basis that it was responsible for cutting growth and pushing up unemployment.

Manufacturing led the fall over the three months, with output down 0.9 per cent on the quarter and registering no growth compared with the same period of 2010.

The mild winter months led to a fall in electricity and gas use, which fell 4.1 per cent on the month and 8.3 per cent on the final quarter of 2010.

Services – which accounts for the majority of GDP – held steady in the quarter.

Within that headline figure, some sectors expanded while others declined.

Government output increased by 0.4 per cent in the quarter and 2.5 per cent on the same period of 2011. Healthcare led the rise as, despite a budget freeze, the number of procedures increased.

Meanwhile output in the distribution, hotels and restaurants sector declined 0.5 per cent in the quarter, though still expanded 0.7 per cent on the year.

Construction suffered a 0.5 per cent fall in output in the quarter, and the same fall compared with the fourth quarter of 2010.

However, as it accounts for only around seven per cent of GDP it is not significant enough to impact on the overall economic growth figures.

“We believe output is likely to decline in the first quarter of 2012, which would mean the UK has re-entered a technical recession,” said Investec economist Philip Shaw.

“What is more important than the ‘double dip or not’ debate is the broad shape of the economic outlook. Of course there is little clarity here, but tentative signs towards a resolution of the Eurozone crisis help us to maintain our central case of a shallow upturn.”