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Think-tank reports UK's output as shrinking

THERE was yet more gloom for the UK economy as a leading think-tank estimated Britain’s output shrank by 0.3% at the end of last year.

THERE was yet more gloom for the UK economy as a leading think-tank estimated Britain’s output shrank by 0.3% at the end of last year.

The National Institute of Economic and Social Research (NIESR) predicted that the contraction in the three months to the end of December left gross domestic product (GDP) flat overall in 2012.

The fourth-quarter decline would mark a sharp reversal of the 0.9% rebound seen in the previous three months, when official figures confirmed the longest double-dip recession since the 1950s was over.

The forecast comes after a run of downbeat economic figures, including a purchasing managers’ survey which suggested the powerhouse services sector contracted in December for the first time in two years, which has fuelled fears of a triple-dip recession.

NIESR said that even if the UK avoided a triple dip, the period of depression was likely to continue for some time. It said it did not expect output to pass its peak in early 2008 until next year.

Doubts over the strength of the UK’s recovery have persisted despite the return to growth in the third quarter.

NIESR, which is independent from party political interests and receives no core funding from the Government, said output had been inflated in the third quarter by tickets for the Olympic games.

The disappointing estimates will heap more pressure on the Government and fuel criticism that Chancellor George Osborne’s austerity measures are choking off the recovery. The Bank of England this week decided to hold its quantitative easing programme, but signs the economy is shrinking again will pile pressure on its committee to sanction more money printing.

Labour’s shadow Treasury minister Chris Leslie said: “Unless we see strong growth in this quarter it will be clear that the last set of figures were little more than a one-off Olympics bounce.”

He added strong growth was needed simply to catch up all the ground lost over the last two years.

The gloomy forecast came after official figures earlier in the day showed manufacturing output fell unexpectedly in November.

Factory output fell 0.3% month-on- month on the back of a 1.3% decline in October, the Office for National Statistics said.

The index of production grew 0.3% in November, compared with October, but had been expected to grow more as some North Sea oil and gas production resumed following maintenance.

The production report from the Office for National Statistics (ONS) showed that industrial production was down 2.4% in November compared with the same month a year earlier.

The ONS report on output in the construction industry showed a 9.8% drop compared with November 2011 and was 3.4% over the previous month.

Both the Bank of England and the Office for Budget Responsibility, which prepares economic forecasts for the government, have warned that GDP may have contracted in the fourth quarter of 2012.

The absence of the one-off factors that boosted growth in the third quarter, such as the Olympics, make it more difficult for the economy to register growth in the fourth.

 

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