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U.K. GDP Shrinks More Than Estimated In Q4


Economic contraction in the U.K. during the fourth quarter was worse than estimated initially, revised data released by the Office for National Statistics showed Wednesday. Nevertheless, the economy is tipped to escape recession despite headwinds.

Gross domestic product fell 0.3 percent from the third quarter, compared to the previously estimated 0.2 percent decline. Meanwhile, the third quarter GDP growth was revised up to 0.6 percent from 0.5 percent estimated previously. For the year 2011, GDP in volume terms increased 0.7 percent.

The sharper than previously reported drop in GDP in the fourth quarter of 2011 is obviously disappointing, but it does not fundamentally change the story of an economy that saw fitful and muted overall growth in 2011, with a relapse in activity at the end of the year, IHS Global Insight Chief U.K. and European Economist Howard Archer said.

"The economy has likely returned to growth in the first quarter of 2012," he said.

Detailed breakdown of the report show that on the expenditure side, investment fell 0.6 percent quarter-on-quarter in the fourth quarter, compared with an increase of 0.6 percent in the previous the previous three months. This was the largest decline since the first quarter of 2011.

Consumer spending increased 0.4 percent during the period compared with a decrease of 0.3 percent in the third quarter. The ONS said, however, that households' disposable income fell at a faster pace of 0.2 percent quarter-on-quarter. The savings ratio fell to 7.7 percent from 7.9 percent in the third quarter.

Government spending increased 0.5 percent compared with 0.5 percent fall in the preceding three-month period.

On the production side, the output of the agriculture, forestry and fishing industry decreased 1.5 percent. Output of the production industries fell 1.3 percent and that of mining and quarrying slipped 2.6 percent. Manufacturing output fell 0.7 percent.

Service sector output dropped 0.1 percent from the third quarter, marking the largest fall in four quarters.

The deficit in net trade was GBP 4 billion in the fourth quarter compared with a deficit in net trade of GBP 4.7 billion in the third quarter. Exports of goods and services rose 1.6 percent, while imports gained 0.9 percent.

In his budget speech last week, Chancellor George Osborne said the U.K. economy is likely to avoid a technical recession and may expand faster than expected earlier. The Office for Budget Responsibility (OBR) revised up its growth forecast for the U.K. economy this year to 0.8 percent. The economy is seen expanding 2 percent next year.

The British Chambers of Commerce (BCC) has ruled out a double-dip recession in the U.K., but the lobby this month trimmed its growth forecast for 2012 to 0.6 percent from 0.8 percent. Growth is expected to pick up to 1.8 percent next year.

The U.K.'s top AAA rating is currently under pressure with Fitch Ratings and Moody's Investors Service recently downgrading the country's credit outlook to 'negative.' High debt and weak economic prospects are weighing on the ratings, according to the agencies.

The Bank of England this month left the asset purchase target unchanged at GBP 325 billion after lifting it by GBP 50 billion at the February meeting to support economic recovery.

by RTTNews Staff Writer

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