Britain was teetering on the edge of an unprecedented triple dip recession at the end of 2012 as GDP growth fell by 0.3%, as the post-Olympic bounce faded.
‘The 0.3% drop was a bit worse than the consensus forecast for a 0.1% fall and meant that GDP in 2012 as a whole was flat,’ said Capital Economics chief UK economist Vicky Redwood.
The first draft of the Q4 output showed service sector output flat over the three months, following 1.2% growth between August and October.
This was dragged downward by industrial production, which fell 1.8%. Some levelling off in was apparent in construction output after a sustained slump earlier in the year, with a rise of 0.3%.
‘Admittedly, the drop primarily reflected the unwinding of the boost from the Olympics Games - we estimate that this probably knocked 0.3% to 0.4% off GDP in Q4,’ added Redwood. ‘But even accounting for that, underlying output still looks as though it is just stagnating.’
The threat of recession resuming after the Q3 Olympic bounce is unlikely to draw a significant policy response. The MPC was broadly positioned in expectation of a continued stagnation, although it may add to the weight of opinion supporting open-ended stimulus.
Chancellor George Osborne had already defended government policies and reiterated his determination to continue with fiscal consolidation, after the International Monetary Fund’s head economist Olivier Blanchard called for a slowdown in the pace of cuts this week.