Big Freeze blamed as economy SHRINKS 0.5%, reviving fears of double dip recession
By Daily Mail Reporter
Last updated at 6:07 PM on 25th January 2011
Fears of a double dip recession were revived today as shock figures showed an economic decline of 0.5 per cent for the end of last year.
The Government blamed the unexpected plunge between October and December - which ended 12 months of growth - on the big freeze and refused to change course.
But experts insisted it was not solely to blame and raised serious concerns about the strength of the economy to withstand the coalition's drastic spending cuts.
The fall in GDP - the first since the third quarter of 2009 - was driven by a 0.5 per cent drop in the key services sector which makes up more than 75 per cent of the economy.
Taking the drop into account, the total growth for 2010 stands at 1.4 per cent which is well below analysts' forecasts.
welder
Decline: The economy shrank 0.5 per cent in the last quarter of 2010
The figures, from the Office for National Statistics, are preliminary estimates and subject to revision but will spark fresh questions about the Government's approach.
The City responded with alarm with the FTSE-100 in the red and Sterling falling.
More...
* CBI chief blasts Government for 'slamming the brakes on spending' in blistering exit speech
* Toff Cameron ‘risks being out of touch without his Essex boy spin chief’, says David Davis
* Biggest squeeze on families since 1920s, warns Bank of England chief
They also pile pressure onto Bank of England governor Mervyn King who is tasked with taming inflation and supporting growth.
Economy graphic
He is due to give a speech later today but analysts warned the contraction meant an imminent rates rise - needed to offset soaring inflation - was now inconceivable.
Howard Archer, chief European& UK economist at IHS Global Insight, said: 'This is a stunningly bad outcome - it is a performance far worse than even the most pessimistic of forecasts.
'This weakness cannot be put down only to the weather. It reinforces already serious concern over the economy's ability to grow significantly in the face of the spending cuts and tax hikes that will increasingly bite as 2011 progresses.'
Experts had expected growth of between 0.2 and 0.6 per cent in the fourth quarter, although had warned the weather made it hard to predict.
The dramatic contraction in GDP will seriously damage prospects over the next year as the coalition rolls out an £81billion cuts package.
And it will shake confidence that the private sector is robust enough to pick up the slack as the public sector suffers swingeing cutbacks.
Chancellor George Osborne admitted the numbers were 'obviously disappointing' but remained defiant, blaming the weather.
'We have had the coldest weather since records began in 1910 and this has clearly had a much bigger impact on the economy than anyone expected,' he said.
'It's notable that sectors of the economy that are less affected by the poor weather, such as manufacturing, continue to perform strongly, helping to rebalance our economy.
'There is no question of changing a fiscal plan that has established international credibility on the back of one very cold month.
'That would plunge Britain back into a financial crisis. We will not be blown off course by bad weather.'
David Cameron, at a Cabinet meeting today, also insisted the coalition had to stand firm and insisted 'choppy' growth was to be expected.
BORROWING LEVEL DIPS
Public borrowing rose another £16.8billion in December, new figures revealed today.
The total was some relief as it was a significant year-on-year decline from the £21billion borrowed in December 2009.
Overall borrowing for the year to date now stands at £118.4billion, according to the Office for National Statistics.
The Government's target is £149billion for the financial year.
Today's level will ease fears borrowing was in danger of overshooting forecasts from the Office for Budget Responsibility.
His spokesman said the Cabinet were agreed that the strategy on the deficit was correct and has to be followed through.
He said: 'We have always said that the period when we are coming out of recession was likely to be choppy. We are confident that the approach we have is the right one.'
An ONS spokesman said GDP would probably have been flat at 0 per cent in the final quarter had it not been for the weather.
He said: 'It's likely the bad weather contributed to most or all of that fall but we would be saying GDP was flat without the weather.'
A series of grim figures have resulted from the Arctic conditions of last month with retailers, housebuilders and transport firms all seeing a slump.
Retail sales in the UK suffered their worst December on record as the high street battled with freezing temperatures and heavy snow.
Construction output, which had been rising and helped boost growth in the second and third quarter, ended in the fourth and fell 3.3 per cent.
Manufacturing provided some reprieve with output up 0.9 per cent across the three months.
New shadow chancellor Ed Balls said the figures were a 'matter of great concern' and pointed out that even without the weather, economic growth would have been flat.
'With families and businesses already facing both rising unemployment and rising inflation, the fact that the economy is now shrinking means the Conservative-led Government's claims to have saved the economy and secured the recovery will ring very hollow indeed,' he said.
'It is now becoming even clearer that when David Cameron and George Osborne complacently congratulated themselves in the autumn for securing economic recovery, this was in fact the result of decisions taken by the Labour government to get the economy moving again.
'The Government inherited an economy that was strengthening, with growth of 1.1 per cent in the second quarter - thanks to decisions we took to support jobs and get the economy moving. It also meant last year's deficit came in £20billion lower than previously forecast.
'Now we are seeing the first signs of what the Conservative-led Government's decisions are having on the economy.'
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Gordon Brown, who has been barely visible since he quit as PM in May, also piped up to accuse Mr Osborne of 'complacency'.
On CNBC, the former Prime Minister said: 'If we only have deficit reduction, that’s the politics of the 1930s.'
But his intervention - on the first day Mr Balls could have made an impact as the new shadow chancellor - may not have helped his own party.
Labour is battling to shrug off the legacy of Mr Brown and present itself as a new team, given both Mr Balls and Ed Miliband were part of the old Treasury line-up.
Jonathan Loynes, chief European economist at Capital Economics, described the figures as 'shockingly bad' and raised serious concerns over whether the economy is strong enough to withstand the coming fiscal tightening.
He said: 'The ONS estimates that weather effects knocked about 0.5 per cent off GDP in the fourth quarter so, even without the impact, the underlying growth picture is significantly weaker than expected.'
The analyst expects the economy to rebound this quarter but fears other adverse forces, such as the impact of the latest VAT hike, could limit the size of the bounce.
TUC general secretary Brendan Barber said: 'Bad weather or not, these are truly awful figures, much worse than anyone expected.
'The Government has a reverse-Midas touch, turning respectable growth figures into one of the sharpest falls on record. When this collapse works its way into the jobs market, the impact will be severe.'
Read more: http://www.dailymail.co.uk/news/art...nks-0-5--Big-freeze-blamed.html#ixzz1C67BWQyp
By Daily Mail Reporter
Last updated at 6:07 PM on 25th January 2011
Fears of a double dip recession were revived today as shock figures showed an economic decline of 0.5 per cent for the end of last year.
The Government blamed the unexpected plunge between October and December - which ended 12 months of growth - on the big freeze and refused to change course.
But experts insisted it was not solely to blame and raised serious concerns about the strength of the economy to withstand the coalition's drastic spending cuts.
The fall in GDP - the first since the third quarter of 2009 - was driven by a 0.5 per cent drop in the key services sector which makes up more than 75 per cent of the economy.
Taking the drop into account, the total growth for 2010 stands at 1.4 per cent which is well below analysts' forecasts.
welder
Decline: The economy shrank 0.5 per cent in the last quarter of 2010
The figures, from the Office for National Statistics, are preliminary estimates and subject to revision but will spark fresh questions about the Government's approach.
The City responded with alarm with the FTSE-100 in the red and Sterling falling.
More...
* CBI chief blasts Government for 'slamming the brakes on spending' in blistering exit speech
* Toff Cameron ‘risks being out of touch without his Essex boy spin chief’, says David Davis
* Biggest squeeze on families since 1920s, warns Bank of England chief
They also pile pressure onto Bank of England governor Mervyn King who is tasked with taming inflation and supporting growth.
Economy graphic
He is due to give a speech later today but analysts warned the contraction meant an imminent rates rise - needed to offset soaring inflation - was now inconceivable.
Howard Archer, chief European& UK economist at IHS Global Insight, said: 'This is a stunningly bad outcome - it is a performance far worse than even the most pessimistic of forecasts.
'This weakness cannot be put down only to the weather. It reinforces already serious concern over the economy's ability to grow significantly in the face of the spending cuts and tax hikes that will increasingly bite as 2011 progresses.'
Experts had expected growth of between 0.2 and 0.6 per cent in the fourth quarter, although had warned the weather made it hard to predict.
The dramatic contraction in GDP will seriously damage prospects over the next year as the coalition rolls out an £81billion cuts package.
And it will shake confidence that the private sector is robust enough to pick up the slack as the public sector suffers swingeing cutbacks.
Chancellor George Osborne admitted the numbers were 'obviously disappointing' but remained defiant, blaming the weather.
'We have had the coldest weather since records began in 1910 and this has clearly had a much bigger impact on the economy than anyone expected,' he said.
'It's notable that sectors of the economy that are less affected by the poor weather, such as manufacturing, continue to perform strongly, helping to rebalance our economy.
'There is no question of changing a fiscal plan that has established international credibility on the back of one very cold month.
'That would plunge Britain back into a financial crisis. We will not be blown off course by bad weather.'
David Cameron, at a Cabinet meeting today, also insisted the coalition had to stand firm and insisted 'choppy' growth was to be expected.
BORROWING LEVEL DIPS
Public borrowing rose another £16.8billion in December, new figures revealed today.
The total was some relief as it was a significant year-on-year decline from the £21billion borrowed in December 2009.
Overall borrowing for the year to date now stands at £118.4billion, according to the Office for National Statistics.
The Government's target is £149billion for the financial year.
Today's level will ease fears borrowing was in danger of overshooting forecasts from the Office for Budget Responsibility.
His spokesman said the Cabinet were agreed that the strategy on the deficit was correct and has to be followed through.
He said: 'We have always said that the period when we are coming out of recession was likely to be choppy. We are confident that the approach we have is the right one.'
An ONS spokesman said GDP would probably have been flat at 0 per cent in the final quarter had it not been for the weather.
He said: 'It's likely the bad weather contributed to most or all of that fall but we would be saying GDP was flat without the weather.'
A series of grim figures have resulted from the Arctic conditions of last month with retailers, housebuilders and transport firms all seeing a slump.
Retail sales in the UK suffered their worst December on record as the high street battled with freezing temperatures and heavy snow.
Construction output, which had been rising and helped boost growth in the second and third quarter, ended in the fourth and fell 3.3 per cent.
Manufacturing provided some reprieve with output up 0.9 per cent across the three months.
New shadow chancellor Ed Balls said the figures were a 'matter of great concern' and pointed out that even without the weather, economic growth would have been flat.
'With families and businesses already facing both rising unemployment and rising inflation, the fact that the economy is now shrinking means the Conservative-led Government's claims to have saved the economy and secured the recovery will ring very hollow indeed,' he said.
'It is now becoming even clearer that when David Cameron and George Osborne complacently congratulated themselves in the autumn for securing economic recovery, this was in fact the result of decisions taken by the Labour government to get the economy moving again.
'The Government inherited an economy that was strengthening, with growth of 1.1 per cent in the second quarter - thanks to decisions we took to support jobs and get the economy moving. It also meant last year's deficit came in £20billion lower than previously forecast.
'Now we are seeing the first signs of what the Conservative-led Government's decisions are having on the economy.'
TODAY'S POLL
Do you think we're heading for a double dip recession?
Yes
No
VOTE
closed down shops
POLL RESULTS
Close
All polls Click to view yesterday's poll results
Gordon Brown, who has been barely visible since he quit as PM in May, also piped up to accuse Mr Osborne of 'complacency'.
On CNBC, the former Prime Minister said: 'If we only have deficit reduction, that’s the politics of the 1930s.'
But his intervention - on the first day Mr Balls could have made an impact as the new shadow chancellor - may not have helped his own party.
Labour is battling to shrug off the legacy of Mr Brown and present itself as a new team, given both Mr Balls and Ed Miliband were part of the old Treasury line-up.
Jonathan Loynes, chief European economist at Capital Economics, described the figures as 'shockingly bad' and raised serious concerns over whether the economy is strong enough to withstand the coming fiscal tightening.
He said: 'The ONS estimates that weather effects knocked about 0.5 per cent off GDP in the fourth quarter so, even without the impact, the underlying growth picture is significantly weaker than expected.'
The analyst expects the economy to rebound this quarter but fears other adverse forces, such as the impact of the latest VAT hike, could limit the size of the bounce.
TUC general secretary Brendan Barber said: 'Bad weather or not, these are truly awful figures, much worse than anyone expected.
'The Government has a reverse-Midas touch, turning respectable growth figures into one of the sharpest falls on record. When this collapse works its way into the jobs market, the impact will be severe.'
Read more: http://www.dailymail.co.uk/news/art...nks-0-5--Big-freeze-blamed.html#ixzz1C67BWQyp
