Honey, the UK economy definitely shrank at end of 2012

During the last three months of 2012, exports fell, business investment dwindled, and consumers were squeezed until their lips went blue. The ONS has now confirmed that this brought about a 0.3% contraction in UK GDP.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013

The ONS has checked its workings out from January and reckons that the UK economy did indeed shrink by 0.3% in the final quarter of last year, which is bang on previous estimates, having expanded 0.9% in the third quarter.  

The main contributors to the decline were a downturn in overseas trade as the recession in the eurozone continued to hit demand for UK-produced goods and services. UK exports fell 1.6% across the quarter.

There was also a 0.8% drop in business investment as companies were either reluctant to invest in new equipment and infrastructure due to the dodgy economic outlook, or were unable to acceess affordable credit.

At the same time, households increased their average spends by more than previously thought, up 0.4% instead of 0.2%. But there were no spending sprees on fripperies or so-called 'unneccessary' goods; they spent more because food and fuel prices went through the roof. Still, the savings ratio for the full year has hit 7.1%, its highest level for 15 years, as people batten down the hatches for a long and hard economic storm.

GDP took a hit from all that emergency North sea rig maintenance last year too, which caused output to fall 10.7% in the extractive industries. In the manufacturing sector, output fell 1.4%, its largest fall since the first quarter of 2009.

Services output, in contrast, was unchanged, and the construction industry saw its first increase in production since the spring of 2011, as output rose 0.8%. 2013 should provide even more of a filip for the housebuilding industry in the wake of Osborne's Budget - all that help for buyers looking to get mortgages on new builds means a whole load of *new* new builds...

So, what does this all mean for the first quarter of this year? Well, the severe weather conditions have already adversely affected retail sales, construction, agriculture and leisure activities in particular. No one seems to be holding out much hope for growth: most economists would be content to achieve a flat line for the past three months, if only to avoid the politically-embarrassing triple-dip. Still, at least we're not in Cyprus.

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