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UK economy even worse than thought at end of 2011
Fears of a double-dip recession grow as UK GDP for the fourth quarter of 2011 downgraded to 0.3%
The UK economy performed even worse than previously thought in the last three months of 2011, contracting by 0.3%, adding to concerns about the stuttering economy and fuelling expectations of further quantitative easing.
The Office for National Statistics had previously estimated a contraction of 0.2%, a figure that renewed fears of a return to technical recession (two consecutive quarters of negative growth), but with new data available it has today downgraded its estimation. It painted a picture of a bleak 2011, revising down first-quarter growth by 0.2%, and second-quarter growth by 0.1%.
Azad Zangana of Schroders said that the revision ‘shows weaker momentum heading into 2012’.
‘Our view is that the weakness highlighted in this release in combination with the poor production and retail sales data so far for, it is more likely than not that the economy also contracted in the first three months of this year, which would put the UK in a technical recession,’ he warned.
Zangana is among economists expecting the Bank of England's monetary policy committee to expand its quantitative easing (QE) asset-buying programme, which is designed to stimulate the economy, in May. This is when the full £325 billion announced so far will have been spent.
Other economists are marginally more upbeat. Chris Williamson of data providers Markit said: ‘The data available so far for the first quarter indicate that the economy is likely to have returned to growth, but only very modestly.’
Although concerns have eased over the eurozone crisis, fears have grown about the economic impact of the rising oil price. Howard Archer of IHS Global Insight – who does not expect a return to recession this quarter – said much will depend on the oil price and the pace of declining inflation, both of which are crucial for consumer spending.
Speaking yesterday Bank of England governor Mervyn King said the weak economy ‘still does feel like a crisis’. Answering questions from a House of Lords Committee he said: ‘It will take a number of years before we are through all this’. But he remained guarded on the potential for further QE: ‘I don’t know whether it’s going to be required or not’.
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