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UK Q4 2012 GDP down 0.3%

Preliminary estimate raises fears the UK could re-enter recession

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The UK’s fourth quarter gross domestic product (GDP) dipped 0.3 percent, the Office for National Statistics (ONS) said on Friday.

In its preliminary GDP estimate for the fourth quarter of last year, the statistics body noted that the fall in national output could be largely attributed to maintenance delays at North Sea oil and gas fields with the net mining and quarrying output dipping by a record 10.2 percent as a consequence.

Manufacturing fell by 1.5 percent in the fourth quarter and the services sector flat-lined, but the country’s construction output rose by 0.3 percent. At a briefing in London, an ONS statistician described the economy as “bumpy and sluggish.”

He added that were the North Sea maintenance impact removed from the data, the UK economy would have contracted by 0.1 percent. The ONS also said there was “some evidence” of post-Olympics “fall back” in the fourth quarter, seen in the hospitality and transport sectors. The third quarter saw the economy grow 0.9 percent on the back of a boost provided by the Olympics.

Commenting on the figures, UK Chancellor of the Exchequer George Osborne said, “The data is a reminder that we face a very difficult economic situation. Last year was particularly difficult, that we face problems at home with the debts built up over many years, and problems abroad with the Eurozone, where we export many of our products, deep in recession."

"Now we can either run away from those problems or we can confront them. And I'm determined to confront them so we can go on creating jobs for the people of this country," he added.

Earlier, speaking at World Economic Forum in Davos, ahead of Friday’s GDP data release, Osborne ruled out a reversal of government spending cuts following calls for an adjustment by IMF's chief economist Olivier Blanchard.

“We have a credible and flexible debt reduction plan. That credibility is very hard won and easily lost," he said on Thursday evening. “We do have to carry on with the cuts. We're not about to bring the cuts programme to an end. It will go on until 2017. We are walking a difficult road but we are going in the right direction."

Osborne added that deficit reduction was necessary to show that the UK could "pay its way in the world.”

In response to the data, the business lobby group CBI said it expected growth "to continue to be fairly flat through the winter but momentum will gradually build later in the year, as the global economy picks up a little and confidence lifts.”

Meanwhile, forex analysts at Société Générale said the figures would continue but not increase the pressure on the pound sterling against a basket of global currencies.

“The underlying trend of the UK GDP data is basically flat, and whether the fourth quarter was just above or just below does not change much. But uncertainty about the UK’s EU membership and status, no growth, and a sterling-negative policy bias, are all going to go on undermining the currency,” an investment note from the bank said.

Howard Archer, chief UK economist at IHS Global Insight, said the data was a disappointment but the influence of a temporary disruption in the North Sea must not be ignored. “However, hopes for growth in the first quarter of 2013 are looking increasingly questionable given the disruption to economic activity that has come from the snow,” he told CFOWorld.

Archer pointed out that GDP contraction was suffered in the fourth quarter of 2010 and the first quarter of 2012 when there was a significant snow disruption. “With the economy fragile, it currently takes very little for a modest contraction to occur instead of modest growth,” he added.

“What is blatantly evident is that the UK economy continues to find it very hard to generate even modest sustainable growth, and its task is not being made any easier by the increased pressure on consumers’ purchasing power coming from the move back up in inflation and on-going muted wage growth. Fiscal tightening kicking in further, muted global growth, and current still tight lending conditions are also hampering recovery prospects,” Archer concluded.


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