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U.K. Q4 GDP Decline Confirmed At 0.2%

U.K. Q4 GDP Decline Confirmed At 0.2%
2/24/2012 6:35 AM ET

Reflecting the adverse economic conditions, the U.K. gross domestic product contracted in the fourth quarter as estimated initially, driven by a sharp fall in business investment.

GDP fell 0.2 percent sequentially in the fourth quarter, the second estimate released by the Office for National Statistics showed Friday. This was the first contraction in a year.

The ONS revised down the third quarter economic growth to 0.5 percent from 0.6 percent. From a year ago, GDP rose 0.7 percent in the fourth quarter, instead of 0.8 percent estimated in January.

In 2011 as a whole, GDP rose 0.8 percent. The economy has now recovered just under half of the output lost during the 2008-09 downturn, the ONS said.

The latest data and survey evidence indicate that the economy is clearly growing in early 2012, IHS Global Insight Chief U.K. Economist Howard Archer said. But as the economy faces serious domestic and international headwinds, it is likely to remain prone to relapses for some time to come, he added.

In the quarterly Inflation Report, Bank of England policymakers said the recovery path will be slow and uncertain amid substantial headwinds.

Yesterday, the European Commission said the U.K. economy will expand 0.6 percent this year, while it estimates a mild recession in the euro area.

The decline in production was revised to 1.4 percent from 1.2 percent, ONS reported. Meanwhile, the drop in construction was confirmed at 0.5 percent and the output of the service industries was unchanged as estimated.

The expenditure side breakdown of GDP showed recovery in consumer spending, while the weakness in investment deepened amid Eurozone crisis.

Household spending rose 0.5 percent, following a 0.1 percent drop in the previous quarter. Likewise, government spending advanced 1 percent after falling 0.3 percent a quarter ago. Both household and government spending growth exceeded 0.2 percent and 0.1 percent rise forecast respectively.

On the other hand, fixed capital formation declined at a faster pace of 2.8 percent and at a larger-than-expected drop of 0.7 percent. Business investment plunged 5.6 percent quarterly compared to last quarter's 1 percent growth.

The deficit in net trade narrowed as export growth outpaced imports. Net deficit came in at GBP 2.5 billion compared with a deficit in net trade of GBP 4.4 billion in the third quarter. Exports and imports climbed 2.3 percent and 0.4 percent, respectively.

by RTT Staff Writer

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