UK economy shrinks by 0.2% at the end of 2011

25 January 2012

UK GDP fell by 0.2% in the fourth quarter of 2011, official figures show.

This marks a sharp drop from the third quarter of last year, when the economy grew by 0.6%, according to the Office for National Statistics (ONS).

These figures are a preliminary estimate, which means the statistics group could revise them up or down by 0.2%.

The ONS cites considerable drops in the output of the production and construction industries, down by 1.2% and 0.5% respectively, for the weakening economy. Output from the service industries was unchanged over the quarter.

While this is the first fall in GDP for a year, two consecutive falls in GDP mean the economy is in recession. Earlier this month, economic forecaster the Ernst & Young ITEM Club announced that the UK was "already in recession", with the effects of the eurozone crisis paralysing the market.


Ranvir Singh, CEO of market analyst RANsquawk, comments that despite the contraction, the markets "sighed with relief" this morning.

However, he continues: "Contraction in the fourth quarter means there is every chance of a double dip given the ongoing weakness of the domestic and European economies.

"A lot is riding on the eurozone. What happens there in the next two months, specifically the strong possibility of a Greece default, will play a major role in determining the fate of UK GDP not just in the first quarter, but throughout 2012."

Ben Thompson, managing director of the Legal & General Mortgage Club, says that the plight of the beleaguered eurozone will dictate how the UK's economic recovery plays out.

He adds: "In terms of the housing market, these figures can't possibly dent the already battered consumer confidence any further. What we will however see is a market that at some stage will recover very slowly, led by the fortunate and confident borrowers who can plan with a degree of certainty. On the evidence of these figures we may need to wait a while."

This article was written for our sister website Money Observer

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