Office for National Statistics confirms earlier estimate that the UK economy shrank by 0.2% in the last three months of 2011
A pre-Christmas shopping spree and an unexpected rise in government spending came to the economy's rescue in the last three months of 2011, but it was not enough to prevent the wider British economy from contracting.
The Office for National Statistics (ONS) confirmed its estimate today, indicating that the UK economy shrank by 0.2%, despite a 0.5% rise in household spending and a 4% annual rise in consumption by the government.
Several economists cheered the figures, which they said could prevent a double dip recession. But Paul Fisher, a Bank of England policymaker, said the outlook for the British economy was still very uncertain and he was keeping an open-minded as to whether more quantitative easing would be required.
Fisher said a steeply rising oil price was a potential hindrance to growth this year. He said a rise in the price of oil, which has risen 11% over the last month, could spur inflation again and derail the recovery.
Brent crude, which reached record highs this week in sterling and euros, jumped another $1 to $124.74 after the United Nation's nuclear watchdog said Iran has sharply stepped up work on uranium enrichment, raising traders' fears of an attack against Opec's second largest producer.
Ed Balls, shadow chancellor, said the ONS data revealed an underlying weakness in the government's recovery plans after the big fall in business investment.
He said: "The case for a change of course and a real plan for jobs and growth in next month's budget is growing by the day."
The ONS added to concerns that the economy remains weak by nudging down the previous estimate for third-quarter growth, from 0.6% to 0.5%. As a result, overall growth during 2011 looked a shade more anaemic at 0.8%, down from previous estimates of 0.9%.
Should the economy not return to growth in this quarter, Britain would again be in an official recession (defined as two consecutive quarters of contraction). Recent economic data – in the services sector, as well as manufacturing and retail sales – suggest the economy is showing signs of a rebound. The quarter-on-quarter rise in household spending during the fourth quarter marked the first increase in 18 months, though the figure was down 0.6% compared with the same period a year earlier. Government spending rose by 1% and exports jumped by 2.3% on the quarter.
The overall fall in GDP was largely driven by the biggest drop in business investment for a year, while the production sector, which includes manufacturing, declined 1.4% compared with previous estimates of 1.2%. The annual figure for consumer spending was also lacklustre, leaving the government to pick up the slack.
Alan Clarke, an economist at Scotia Capital, was upbeat about the prospects for the beginning of 2012, citing a bounceback in consumer spending as positive news. He said the government spending figures would encourage people to ask "austerity, what austerity?"
But Ross Walker, an RBS economist, called the 0.2% contraction "a pretty poor number". He said: "The main positive is that improvements in survey data that look increasingly broad-based have not been captured, and we will get a bounce back in the first quarter [of 2012] … I don't think it will be a spectacular first quarter but I think we will squeeze some growth out of it.
"Since George Osborne's spending review the economy has grown by just 0.2% compared to the 3% the government predicted. And far from the eurozone crisis being to blame, only rising exports kept us out of recession last year. In the US, where the government has taken a more balanced and steady approach to deficit reduction, their economy has more than recovered all the output lost in the global recession, while in Britain we are still almost 4% below our pre-crisis peak."
When the worse-than-expected fourth-quarter figures were first published in January, David Cameron admitted they were disappointing but insisted there was "not an ounce of complacency" as the government sought to get Britain back on track.
Facing mounting pressure to temper spending cuts to restore growth, the chancellor, George Osborne, stuck to his guns, saying: "I think we've got the right plan; we've got to stick to it."