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UK economy contracted 0.3% in final quarter of 2012

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The UK economy shrank 0.3% in the last three months of 2012, according to official figures.

This figure is unchanged from the first reading in January, and will give economists continued cause for concern.

Initally they had expected a 0.1% contraction in growth, with many pointing to an expected reversal of the ‘Olympics effect’ that had helped the economy grow 0.9% in Q3.

According to the figures from the Office for National Statistics (ONS), the production industries fell by 1.9%, revised down from the previously estimated 1.8% fall.

Manufacturing output fell by 1.3%, revised up from the previously estimated decrease of 1.5%.

Output of the service industries fell by 0.1%. Service industries output was previously estimated to be unchanged.

Output of the construction industry rose by 0.9%, revised up from the previously estimated 0.3% increase. Household final consumption expenditure increased by 0.2% in volume terms in the latest quarter.

The ONS said the decline in growth can be attributed to three factors: maintenance at the UK’s largest North Sea oil field, a ‘fall-back’ effect from the Olympic and Paralympic Games, and underlying weak domestic demand.

Although early forecasts for Q1 2013 GDP are more positive, a further contraction would see the UK slip into its third recession since the financial crisis.

The government is under increasing pressure to take steps to lift the UK towards recovery, especially after Moody’s became the first ratings agency to strip the UK of its AAA credit rating last week.

Jeremy Cook, chief economist at foreign exchange company, World First, said:

“In light of recent developments a hold at -0.3% may be viewed by some as a bit of good news for the UK economy. A revision to construction sector growth from 0.3% to 0.9% is certainly welcome and goes along with the improving set of sector data we’ve seen since Q3. That said, we cannot shy away from the horrific -1.5% fall in export growth.

“The recent depreciation of the pound is a good thing if you believe that a lower pound will lead to a rebalancing of the UK economy towards export growth. Exports can be made more attractive by pricing, or by simply making products that are so much better than their competitors’ that there is no choice to be made.

“The Bank of England cannot engineer the latter and will instead go with the former of these two options. The problem is that this plan hasn’t worked over the past four years and I would like to know why they think that this time will be any different.”





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