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‘Triple dip’ alert as UK economy contracts again

UK economy weaker than expected in last three months of 2012, shrinking by 0.3%.

‘Triple dip’ alert as UK economy contracts again

The UK economy contracted again in the final quarter of 2012, with a 0.3% decline in GDP defying even the gloomiest of forecasts and raising fears of a return to a full-blown recession.

The 0.3% decline in GDP, dragged down by a particularly weak production sector, comes after a brief respite in the third quarter when the economy rose out of recession to expand by 0.9%.

Two consecutive quarters of negative growth are needed to meet the official definition of recession, and January’s heavy snow could further weigh on the economy, dragging the first quarter GDP lower.

However, reports on UK GDP are often revised up as more data becomes available to the Office for National Statistics. Today’s is the preliminary reading, which only reflects around 44% of the total data that will become available for final estimates.

'Seasonal adjustment problems, working day effects, the Olympic effect and underlying poor data quality make this an incredibly volatile report,' commented ING economist James Knightley, who said he was 'hopeful of a gradual improvement through 2013'.

What economists and investors are saying:

Azad Zangana, Schroders: ‘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.’ 

Howard Archer, IHS Global Insight: ‘It must be noted that the sharper-than-expected drop in GDP in the fourth quarter was influenced significantly by a record drop in mining and quarrying output which was due to repair work on a major North Sea oilfield... There was also undoubtedly some payback in the fourth quarter from the Olympics-lifted GDP spike of 0.9% quarter-on-quarter in the third quarter.’

Trevor Greetham, Fidelity Worldwide Investment: 'The more time that passes the clearer it is that America's gradual and delayed approach to fiscal tightening is the right one. As the IMF belatedly concedes, it is far easier to balance the books when an economy is growing.'

Ross Walker, Royal Bank of Scotland: ''To be clear, the UK economy is in a fragile state and underlying output trends are broadly flat this is not a 'good' number in any absolute sense. But markets and policymakers need to look beyond the headline GDP estimate.'

Chris Williamson, Markit: ‘The question is whether the smaller manufacturing sector can help drive a return to growth in the wider economy, or whether weak domestic consumer and business confidence will mean a downturn in services and retail offset any expansion of the goods-producing sector.’

Mark Littlewood, Institute of Economic Affairs: 'George Osborne's Plan A of spending £600 billion more over this Parliament than he brings in in tax revenue is, unsurprisingly, failing to yield results.’

Nonetheless, the weak report raises the pressure on chancellor George Osborne to re-think his austerity programme, coming after International Monetary Fund chief economist Olivier Blanchard this week told BBC Radio 4’s Today Programme that now ‘would be a good time to take stock’.

Chris Williamson, economist at data company Markit, said the report banged 'another nail in the coffin of the UK's AAA credit rating'.

It will also renew questions about whether the Bank of England should re-boot its quantitative easing aid programme, having already spent £375 billion to stimulate the economy. While the UK economy is weak, global growth is improving. Inflation remains above target at 2.7%, and expected to move slightly higher in the coming months, while the Bank’s Funding for Lending scheme is starting to show results.

GDP and main components (source: ONS)

Before today’s figures were released, forecasters on average had expected the UK economy to have contracted by 0.1% in 2012, ‘zig-zagging’ as had been predicted by Bank of England governor Mervyn King.

This year, the economy is expected to improve with economists on average pencilling in growth of 1% as the global economy slowly heals.

The pound weakened on the news, dropping back to $1.5760 after initial strength this morning. The FTSE 100 was little moved, higher on the day at 6,271.

'This will do little to reverse what’s becoming a very negative outlook for the UK and the pound,' said Andy Scott of foreign exchange brokers HiFX.

21 comments so far. Why not have your say?

Geoff Downs

Jan 25, 2013 at 10:38

More bad economic news and the market goes up. Of course the bulls will say the market is anticipating eighteen months ahead. LOL

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Jan 25, 2013 at 12:41

As I see it the glass is likely to be half full as apposed to half empty.

The atrocious weather we have been having recently could possibly help rather than hinder.

An enormous amount of work has been created to repair damaged infrastructure and inprove flood defences. Damage caused by floods has so far only slowed the recovery process, it has not crippled it. Obviously there are losers. Notably Insurance companies, but they should be well able to live off their fat for awhile.

The onset of better weather should see a significant upturn in construction work and building repairs. Practically everyone should be a winner, from soft furnishers to garages and body repair shops.

Perhaps the farmers have had the toughest time. Weeks and weeks of rain has washed away any hope of making a profit on the 2013 harvest. But they have a subsidy safety net based on acreage which is not tied to production output, also I am given to understand that they will receive an additional subsidy based on environmental improvements they have carried out on their farms, (to all intents and purposes: allowing land to lie fallow for the benefit of wildlife). Critics have poured scorn on these latest measures pointing out that the recipients are being paid twice for doing virtually nothing, but as things stand at the moment I don't begrudge them the money. Managing land is one of the hardest jobs you could choose.

So there you have it. It's an ill wind that blows nobody any good.

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Jan 25, 2013 at 14:14

I've been saying for some time now that this'll end in us being bailed out and the bailers out, mainly the Germans, will demand that we join the euro. So forget Dickhead Dave's speech earlier this week. The future sees us more tightly in Europe than we can imagine!

Mystic Pedro's predictions make the Mayans look extinct!

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Altogether now

Jan 25, 2013 at 14:18

Can someone please explain why GDP has to increase all the time? If the cost base (spending) is being reduced then surely the Net DP is improving? GDP growth is obviously a 'good thing' but why is no growth a bad thing? Genuine non-rhetorical question.

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wayne roberts

Jan 25, 2013 at 14:42

Because capitalism requires growth, without it you lose the confidence of creditors and have to pay more to service your debt and it gets worse and worse until you are Greece. Thanks to laurel and Hardy, ie Cameron and Osbourne we are going down that route.. America can borrow trillions because creditors believe it has what it takes to pay it back so they can keep working and inventing etc back to prosperity, we on the other hand have gone down the austerity route and though the market liked it for a while it is now realising that growth would have been better.. If we don't spend on investments in ourselves that will create growth in the future we will be worse than Greece - at least they have nice weather.

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Geoff Downs

Jan 25, 2013 at 14:58

No you are wrong. We can continue to borrow, in that sense we are no different to the US. We also have our own currency, unlike Greece.

The US Government is not tackling debt, it is actually adding stimulus. The UK is saying it is using austerity. In any event both countries are seeing a worsening of the debt problem.

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an elder one

Jan 25, 2013 at 15:10

True growth is about the march of civilisation; increase in population, improving of living standard through the applications of scientific discovery and invention. Actually growth requires capital to enable all that, which is created by the central bank, with promises from the borrowers to pay it back at a real premium. Of course, investment by the bank has to be covered as such by the endeavours of the toiling society; if those toils are insufficiently rewarding we all go down the pan eventually..

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an elder one

Jan 25, 2013 at 15:19

The problem we have hit and are still trying to recover from is the result of pretending we all could growth faster than is decreed by nature; ie. we all borrowed more than could be sustained by the profit of our toils.

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an elder one

Jan 25, 2013 at 15:24

For capital, read paper money.

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an elder one

Jan 25, 2013 at 16:25

I'm no economist, but as I see it the natural rate of growth with a matured society such as the so-called West, is of the order of 2% or so; any amount much greater than that demands regression to the norm, which is the state we are in. Such a regression necessitates a cutback of expenditure and/or increase of productivity, both of which work at different speeds, hence with savings on the one hand and new capital (stimulus) for growth on the other, the net can still be an acceptable increase in debt; hopefully the growth will eventually catch up; it's up to the experts to work out the algebra.

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Anonymous 1 needed this 'off the record'

Jan 25, 2013 at 17:11

Cut backs my a**e.

The Govt is still borrowing and wasting billions just look at December's figures!

There has been no bonfire of the quangoes

There have been no cuts to NHS spending which was ring fenced.

The HMRC has just employed another 500 just to administer Osbourne's unfair and hugely complicated child benefit system.

Billions are still being wasted on overseas wars.

Public Service pension liability now exceeds £1 TRILLION

Public Debt now exceeds £1 TRILLION

The Government is still paying out more in welfare benefits than it receives in income tax! which means that the NHS, education, etc etc has to be paid from other taxes. - Yes I couldn't believe this too.

The Government has not cut a single penny from our EU contribution whilst continuingly raising taxes on its own hard pressed citizens.

Our aid budget continues to rise

The Govt is still paying thousands of pounds a year in benefits to fit and well adults in work whilst our elderly, sick and young go without.

cuts? what cuts?

The really worrying thing is that there are still people and politicians who believe that borrowing more is the answer.

And the really really worrying thing is that like the head in the sand French, Italians etc we will probably vote back into power the idiots that got us into this mess.

Perhaps thats what needs to happen. 5 more yerars of labour and maybe just maybe the good people of this great nation will finally learn to never ever to vote for them again.

The outgoing coalition could leave Ed Bills and Millipede a note saying "There is no more money".

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an elder one

Jan 25, 2013 at 17:45

Anon 1, "Cut backs my a**e."; if you mean "arse" don't be shy, say so, it's a perfectly good word from the dictionary; I don't disagree with your sentiment, otherwise!

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cross the cat via mobile

Jan 26, 2013 at 12:40

.....and there.s me thinking it was a worldwide recession, what with Greece, and Spain and America and Italy; have i just been watching holiday programmes and getting confused? All this time it's just been the labour party's fault, nothing to do with bankers at all.phew! What a relief!

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an elder one

Jan 26, 2013 at 16:16

The bankers did what they were enabled to do legally, they are in a way, the agents of the government of the day. Mr Brown gave the central bank its head, and his preoccupation with micromanagement of the economy in pursuit of the redistribution of wealth and procurement of a servient electorate encouraged borrowing that led to the creation of an excessive bureaucracy peopled by a corresponding growth in the non productive civil service and facile benefits culture, so generating extreme debt that embraced both state and individual fortune.

It is the responsibility of a government to manage the affairs of state, not banks, and if the banks don't do it right it is for government to see that legislation is in place to see that they do; we've all discovered that in hindsight.

The trouble is we can see little agreement among the political factions as to how to put things right.

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an elder one

Jan 26, 2013 at 16:53

In a capitalist system the moral dimension can only be addressed through the democratic processes of governenment, I think; surely one cannot reasonably expect its nuances to be addressed at the company business level in competitive industry, there's enough else to think about. Charity at the personal level is another matter.

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Jan 28, 2013 at 10:49

Triple dip recession my arse!! It is one and the same recession, just prolonged by this QE and its inevitable consequences. All that has been acheived is a drawing out (in time) of the pain that needs to be endured before a recovery can even begin to show its early buds!!

The baby boomers continue to take too much for so little and give their subordinates so litle for too much. Everybody is overtaxed (I've left the UK and pay a very reasonable 10% income tax). There is rebellion in the air, this is not a recipe for growth.

As the £ continues its drift against other currencies it compounds the inflationary pressure cooker of QE.

So the question is, does QE give a soft landing eventually or have we in fact created a time bomb? My feeling is the latter!!

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Geoff Downs

Jan 28, 2013 at 10:58


Are we taxed too much? The wealthy aren't, the less wealthy are.

Is QE pointless? Yes

Is QE inflationary? No

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Clovis Bassington

Jan 28, 2013 at 16:12

QE wasn't pointless originally. It is now. It hasn't been inflationary yet......

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Geoff Downs

Jan 28, 2013 at 17:02

Clovis Bassington,

I assume you believe QE at the onset was required to prevent bank failures. It is highly debatable whether rescuing banks was in the long run the right thing to do. The banks today may well believe they are to big to fail and therefore the same problems still exist.

QE isn't getting into the real economy in enough amounts to create real benefits or significantly increase lending. It is hard to see therefore how inflation could be created.

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Clovis Bassington

Jan 29, 2013 at 13:03


I don't disagree that propping up the banks may not have been a good idea, and certainly what happened to Lloyds-TSB was a disaster. The first round of QE was Brown's final fling at abolishing Boom & Bust. It prevented the bust, but loaded so much debt on the recovery that it's not surprising that we're going nowhere. Asset prices never really crashed too, and that was problem too for the recovery. The lack of recovery has caused to deficit to rise, leading to calls for more QE.

What then crumples is the pound, against the euro (!) and currencies such as the Swiss Franc. This could be the beginning of a sterling crisis. - That will bring us inflation pretty quickly. The traditional inflationary spiral may follow.

I do not discount the Friedmanite view that Governments cause inflation. Certainly a dose right now would suit the books and keeping the money supply very loose would according to that analysis make inflation happen. The deflationary pressures won't prevent the pound falling, indeed they could turn its drop into a serious slide. Inflation is coming, lets hope it does get out of control.

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Geoff Downs

Jan 29, 2013 at 15:52

Clovis Bassington,

" Inflation is coming, lets hope it does not get out of control."

I think you are backed by the vast majority of people, including experts, on the forecast of high inflation.

For me though the signs point to deflation. Japan has been down this path earlier and they are still suffering low growth and deflation.

We have gone through a massive credit boom and now indebted consumers are paying down debt.

QE is not getting into the real economy through expanded bank leading. It is hard to see therefore how inflation can come about.

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