By Daniel Hunter
Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, has said that the GDP picture is far from bright after today's data was released.
The official figures gave fresh concern to fears of a triple dip recession, as they showed that the UK's economy contracted by 0.3% in the final quarter of 2012.
The Office for National Statistics' data shows that output shrank following 1% growth in the third quarter, although this was considered to be artificially skewed by the Olympics.
And following the major disruption caused by snow and adverse weather over the past week, the hopes of the figures being better in the first quarter of 2013 are slim.
“Today’s GDP figures are right at the lower end of our expectations. The manufacturing and services figures came in pretty much where we expected them to but the construction outturn is very disappointing in the context of the monthly data that has already been published," said Goodwin.
"Construction output must have collapsed in December to get such a small boost over the quarter as a whole.
“The extraction sector also continues to exert a major drag. Where oil production was once a major support to UK activity, the sector is declining rapidly and the Q4 collapse means that output has now fallen by almost 40% over the past five years. This is having a significant impact on the GDP figures — the excluding oil measure is just over 2% short of previous peaks, in contrast to the 3.5% shortfall for GDP.
“In reality the quarterly growth rate does look worse than it really is. As well as the oil issue, the level of GDP in Q3 was inflated by the inclusion of the revenues from the ticket sales and TV rights from the Olympics and Paralympics boosted GDP. Accounting for that, you are left with an economy that is pretty much flat, as it has been for much of the past year when these one-off factors are stripped out.
“Last week’s snow also rings alarm bells about 2013Q1. Hopefully the fact that the disruption has come early in the quarter, in contrast to previous episodes, means there is more scope to catch up this time around. But the chances of another negative quarter — and a technical recession — are relatively high.
“That said, we are more optimistic about prospects further out. Encouragement can be drawn from the nascent recoveries in consumer spending and business investment, while the external outlook is also beginning to improve, particularly in the US and emergers. We still think that growth of close to 1% is achievable for 2013 as a whole. And even stronger outturns could be possible were fiscal and monetary policy more supportive."
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