British economy officially worse than expected

Agence France-Presse
Britain's economy shrank by a worse-than-expected 0.3% in the 4th quarter of last year, revised official data showed on Wednesday, March 28, raising the prospect of another recession

LONDON – Britain’s economy shrank by a worse-than-expected 0.3% in the 4th quarter of last year, revised official data showed on Wednesday, March 28, raising the prospect of another recession.

The Office for National Statistics (ONS) said gross domestic product (GDP) contracted slightly more than its previous estimate of minus 0.2% owing to a decline in the services sector and a larger drop in household spending.

A further official contraction of GDP in the first quarter of 2012 would place Britain back in recession, defined as two successive negative quarters.

“The latest GDP data … shows weaker momentum heading into 2012,” said Schroders economist Azad Zangana.

“Our view is that the weakness highlighted in this release, in combination with the poor production and retail sales data, it is more likely than not that the economy also contracted in the first three months of this year, which would put the UK in a technical recession.”

The ONS also lowered its growth estimate for the whole of 2011, to 0.7% from a previous forecast of 0.8% expansion.

“Overall, the economy has been broadly flat over the period since autumn 2010 with some temporary ups and downs,” said PricewaterhouseCoopers chief economist John Hawksworth.

“Downside risks from the eurozone crisis have moderated since last December, but rising oil prices have emerged as a concern that could prolong the inflationary squeeze on consumers.”

Although not a member of the eurozone, Britain relies heavily on the neighbouring bloc for much of its trade.

CMC Markets analyst Michael Hewson said the latest ONS data “validated” recent moves by the Bank of England to pump billions of pounds of cash into the British economy in a bid to bolster growth.

BoE governor Mervyn King on Tuesday warned that an extra day’s public holiday later this year to mark Queen Elizabeth II’s diamond jubilee, or 60 years on the throne, could in fact hinder economic growth.

King said it was “quite possible” that the economy would shrink over the next 3 months, or second quarter.

“We do expect quite possibly a fall in output in the second quarter, followed by a rise in the third quarter, as we will lose an extra day’s work,” the governor told a panel of deputies.

Britain’s coalition government meanwhile last week predicted that the country’s economy would expand by 0.8% this year, which marked a slight upgrade from its prior forecast of 0.7%.

Economic activity has also been held back in Britain by a government austerity drive aimed at averting a Greek-style debt crisis. – Agence France-Presse