Honey, the economy shrunk again

The UK economy contracted 0.3% in the three months from October to December. Are we heading for the dreaded triple dip?

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
The ONS reckons that UK GDP has shrunk 0.3% in the last three months. This comes as no great surprise. The 0.9% growth spurt in Q3 was bound to be short-lived as it benefited from an extra working day and a boost from the Olympics. However, our much-prized AAA credit rating is looking shakier by the day.

This is only a first estimate, however, and a first estimate from the ONS at that. History shows that this quango is less likely to be on target on its first try than a toddler at its first archery lesson.

But there are a few irrefutable reasons why the UK economy may have gone backwards in the last three months. Firstly, the disruption to our North Sea oil fields caused by the recent pipeline shenanigans is believed to account for just over half of the total decline. And then there are those gloomy industrial production figures: there’s a spanner somewhere in the works as manufacturing output has fallen 1.5%.

And, as Stevie Wonder once sang, ‘Blame it on the sun, the sun that didn’t shine.’ That’s right, bad weather has contributed to a 0.6% decline in UK agriculture as flash flooding destroyed crops. In fact, construction is the only major part of the economy managing any kind of growth at all, expanding just 0.3%.
 
Elewhere, the PMI data is showing a slowdown in the services sector, which is bad as it’s our key breadwinner. Manufacturing is growing slightly according to the same data, although that’s likely to have a fairly negligible effect on the economy as a whole. Sterling is being slaughtered - and has already fallen below last year's low against the euro, which is bad news for importers. Demand for British-made goods is rising from the US, Germany and emerging markets, however, which is helpful.
 
The lull in economic strife in the eurozone is also good news. It’s our main export customer and orders from the Continent are vital. We’re not having much luck stimulating our economy from within, that’s for sure. Consumer demand at home remains weak as real pay continues to fall, and latest data from the bank of England shows that despite wheezes like Funding for Lending, businesses just aren’t borrowing.
 
Will there be a triple-dip? Quite possibly, but that’s just an empty label. The truth of it is that our economy is going to keep bumping along until something, anything, changes for the better. The pressure is now on the Chancellor to come up with this something/anything to revive the economy in his March Budget. What an exciting prospect, eh George?

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