By Maximilian Clarke

The UK economy contracted by 0.2% during the final quarter of 2011, the Office for National Statistics has again confirmed.

The preliminary estimate, published in January, also showed a 0.2% contraction, prompting hasty assumptions by media pundits that a recession was underway. But the ONS’ preliminary estimates are compiled without including all sectors of the economy and can be subject to revision.

Accounting for the 0.2% decline was an -0.8% drop in manufacturing. But the latest figures from the confederation of British Industry indicate a sharp resurgence in manufacturing confidence. And with the Markit/ CIPS construction and services PMIs all indicating growth, a return to recession is widely considered unlikely.

“Although the UK economy faces many challenges, we believe it has returned to positive growth in the first quarter of the year and a recession will be avoided," says British Chambers of Commerce Chief Economist, David Kern. "But the austerity plan and problems in the eurozone will create obstacles for the economy, which is why the government must place growth at the top of its agenda."

Encouragingly, figures showed an increase in household consumption. Growing 0.1% in Q3, the final quarter saw an increase of 0.5%. though Christmas will have accounted for some of this increase, the increased growth suggests that consumer confidence is making tentative moves from the long term lows witnessed over the past 12 months.

Continued Kern: “Priorities must be reallocated within the overall spending envelope with greater emphasis on policies to boost growth. With total borrowing in the current financial year likely to be around £8bn below the OBR’s estimate in November, we believe that the Chancellor can increase spending in the Budget by some £4bn while still maintaining market credibility. He should use this flexibility to implement policies that will enable businesses to create jobs and drive recovery.”

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