By Maximilian Clarke

Falls in the productive industry and construction sectors saw the UK economy contract in the fourth quarter 2011, as domestic and international instability continue to erode the confidence of the UK’s businesses.

The economically dominant services sector, having jumped by 0.7% in the third quarter 2011, flatlined- though avoided contraction.

“Yuck!",exclaimed Jeremy Cook, Chief Economist at World First forex brokers in reaction to the grim headline figures. "The relatively solid numbers from last quarter’s services sector have been completely undermined by falls in the manufacturing and industrial sectors," "Manufacturing output fell by 0.9%, in keeping with the purchasing managers surveys that have been showing slight contraction through the end of 2011, while the services sector stayed flat.

Despite the fall, economists remain confident that the UK will avoid a damaging 'double dip' recession. A report published at the close of 2011 by the British Chambers of Commerce had anticipated the contraction though proceeded to state that a second consecutive quarter of decline- as the definition of recession dictates- remains unlikely. Cook continues:

“However, we think that this is a blip and a double-dip recession in the UK is still avoidable. Preliminary figures are always volatile and the possibility of an upgrade over the coming months is possible. This number will mean higher unemployment, however, and lower business and consumer confidence in the short-term. Queue further calls from members of the opposition that the coalition government cannot keep cutting as it is.

“The Bank of England has also published its latest meeting’s minutes. The MPC said that there had been some positivity in the past month, but that uncertainty remains. The main headline is that some members of the committee are saying that further QE is likely in the future. We expect an injection of £75bn in February in the absence of a solution to the Eurozone situation…”

Austerity measures and an unemployment rate that as yet shows no sign of receding are collectively depressing consumer confidence, though it was a drop in orders from the UK’s chief trading partners that saw exporters struggle.

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