UK economy shrank by 0.3% in the final quarter of 2011

It's not as bad as we thought; it's worse. The ONS has announced that UK GDP contracted by 0.3%, not 0.2% in the last three months of 2011.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
This revision, along with a few other back-dated tweaks, takes GDP growth for the whole year to just 0.7%, not 0.8%. You might say that only a statistician would get excited about a 0.1% difference but even so there’s no denying that this is movement in the wrong direction, however slight.

One of the chief agents of this economic decline was the 1.3% drop in industrial production last year. Manufacturing output slowed by 0.7% and the energy sector suffered from a consumption blip after weeks of mild weather left radiators languishing unused. Construction was also down, with 0.7% fewer projects built; even service sector output dropped 0.1%.   

Government spending, household consumption and exports all grew, however. But not enough to turn the tide. The Chancellor’s purse strings were pulled pretty tight, and the increase in household spending came hand-in-hand with a falling savings ratio as people dipped into their nest eggs to get by. Over the year as a whole, household's real disposable incomes fell 1.2%, the largest fall since 1977.

It makes for pretty grim reading, and the situation is unlikely to improve in the first quarter of 2012. Lower inflation will help to boost real incomes this year, but actual wage growth remains weak. The PMI forecast a 0.3% expansion in the three months to March, but that barely covers the lost output in Q4 of last year.

The only number crunchers foreseeing a bright future for the UK economy are the statisticians over at the OBR now. It has predicted a 0.8% economic growth rate for 2012. But that is looking increasingly unlikely as the year goes on…

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