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Britain heading for triple-dip recession as GDP shrinks 0.3% in fourth quarter Britain heading for triple-dip recession as GDP shrinks 0.3% in fourth quarter
(about 1 hour later)
Britain could be on course for its third recession in four years after the economy shrank by 0.3% in the last three months of 2012.Britain could be on course for its third recession in four years after the economy shrank by 0.3% in the last three months of 2012.
A fall in manufacturing output dragged down the economy, countering a small rise in construction between October and December last year, according to the Office for National Statistics. The figures were worse than expected and could put pressure on the government to consider a "plan B" that would stimulate demand.
The figures were worse than expected and could put pressure on the government to consider a "Plan B" that would stimulate demand. A fall in manufacturing output dragged down the economy, countering a small rise in construction between October and December last year, according to the Office for National Statistics. For the whole of 2012 the economy achieved zero growth.
The prospect of a triple-dip recession, which will become official should the economy contract again in the first quarter of 2013, is expected to further dent the confidence of consumers and companies, hitting high street spending and business investment. Sterling dived on the news, reflecting fears that the UK will lose its AAA credit rating and status as a safe-haven economy, though the stock market shrugged off the news, remaining at its highest point for four years.
The contraction in GDP followed a near 1% rise in GDP in the third quarter when the economy had been boosted by the Olympics. George Osborne said he would not "run away" from the problems facing the UK economy: "We have a reminder today that Britain faces a very difficult economic situation. A reminder that last year was particularly difficult, that we face problems at home because of the debts built up over many years and problems abroad with the eurozone, where we export most of our products, in recession."
On Thursday chancellor George Osborne was forced to rebut comments by the chief economist of the International Monetary Fund that the UK should ease back on austerity to give the ailing economy a boost. The shadow chancellor, Ed Balls, called on Osborne to introduce policies which will "kickstart our flat-lining economy". "A plan B now should include a compulsory jobs guarantee for the long-term unemployed and a temporary VAT cut to boost family incomes and our struggling high streets," said Balls.
The economy remains 3.5% below its peak in 2007 and is not expected to regain its previous level for at least another two years, making it the longest recovery in 100 years. The Trades Union Congress general secretary, Frances O'Grady, said the chancellor's austerity plan had "pushed the UK economy to the brink of an unprecedented triple-dip recession".
One of the biggest factors undermining growth in the period was a cut in government spending. A post-Olympic cut in spending on sport and recreational facilities pushed down the index for government and other services by 0.7%, following an increase of 1.6% in the previous quarter. All Olympic ticket sales were counted in the previous quarter, giving the ailing economy a one-off boost. A triple-dip recession will occur if the economy contracts again in the first quarter of 2013. The economy remains 3.5% below its peak in 2007 and is not expected to regain its previous level for at least another two years, making it the longest recovery in 100 years.
A survey of economists had predicted a 0.1% drop in GDP in the fourth quarter, though several prominent analysts forecast a bigger contraction after a series of surveys last year showed the manufacturing industry suffering from a downturn in exports. "We are now mid-way through the coalition's term of office and its economic strategy has been a complete disaster. We remain as dependent on the City as we did before the financial crash," O'Grady said.
In the 10 quarters since the election, manufacturing has contracted by 0.4% and the construction sector has shrunk by 9%, the TUC said.
The contraction in GDP in the fourth quarter followed a near 1% rise in the third quarter when the economy was boosted by the Olympics.
A survey of economists had predicted a 0.1% drop in GDP in the fourth quarter, though several prominent analysts had forecast a bigger contraction after a series of surveys last year showed the manufacturing industry suffering from a downturn in exports.
The ONS data showed that within the manufacturing sector, mining and quarrying output suffered its biggest decline since records began because of maintenance on North Sea oil and gas fields.The ONS data showed that within the manufacturing sector, mining and quarrying output suffered its biggest decline since records began because of maintenance on North Sea oil and gas fields.
In the powerhouse services sectoractivity ground to a halt in the fourth quarter due to the absence of the Olympics boost in the previous three months.
The only bright spot was the construction sector, which delivered a 0.3% rise in output. A post-Olympic cut in spending on sport and recreational facilities pushed down the index for government and other services by 0.7%, following an increase of 1.6% in the previous quarter. All Olympic ticket sales were counted in the previous quarter, giving the ailing economy a one-off boost.
Despite the contraction in the economy, employment has remained resilient, with figures this week showing that almost 30 m adults were in a job in the quarter to November, up by more than half a million on the previous year.
The Bank of England governor, Sir Mervyn King, said earlier this week that the UK had been slower to recover than most other countries. But he insisted there were signs of a "gentle recovery" under way and asked the British public to be patient.
Lee Hopley, chief economist at EEF, the manufacturers' lobby group, said there was little positive news from the figures. "Even assuming some unwinding of activity from the Olympics boost in the previous quarter, this still leaves no real signs of underlying growth in the economy. The news from industry was particularly weak, with November's sharp drop on output contributing to a rather grim fourth quarter and leaving the overall picture for manufacturing in 2012 the weakest since 2009."