Post date: Friday, 25th January 2013

UK GDP: Triple-dip recession on horizon as GDP falls by 0.3% in Q4

Figure 1: GDP and main components. Source: ONS.

Figure 1: GDP and main components. Source: ONS.

The UK economy could be heading for a triple-dip recession after the Office for National Statistics (ONS) has revealed that GDP decreased by 0.3% in the fourth quarter of 2012.

According to the ONS’ preliminary estimate of Q4 2012 GDP, this is the fourth quarterly contraction in the last five quarters. The fall is also worse than city consensus expectations of -0.1%.

Commenting on the figures, Azad Zangana, European economist at Schroders, said: “Part of the negative hit to growth was caused by an Olympics hangover, where the boost seen in the third quarter disappeared. This should be seen as a one-off hit to the economy.

“However, now that a negative GDP figure has been recorded, there is a significant risk that the UK economy suffers a triple-dip recession. Weak underlying economic activity coupled with the disruption of recent poor weather could cause GDP to fall in the first quarter of 2013.

"The external environment is not helping either. The latest leading indicators from France suggest the recession there is set to deepen, while similar data from Spain and Italy also suggest more downside risks.

"As for monetary policy, the Bank of England seems to be waiting for more evidence on the effectiveness of the Funding for Lending Scheme. The scheme has helped lower the cost of borrowing for both corporates and households, and has increased the number of higher loan-to-value products on offer.

“However, demand for borrowing from credit worthy individuals and firms remains low.

“We expect the Bank of England to restart its quantitative easing programme in the Spring as the economy continues to disappoint. Meanwhile, the sovereign rating agencies are circling.

“Disappointing growth and recent poor public finance numbers suggest the UK will lose its AAA rating in the near future.

Meanwhile, John Cridland, CBI director-general, said: “After a difficult year, the UK economy has ended on a disappointing note.

“We think growth will continue to be fairly flat through the winter but momentum will gradually build later in the year, as the global economy picks up a little and confidence lifts."

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