The Office for National Statistics confirmed today that gross domestic product contracted at a quarter-on-quarter rate of 0.3 per cent in the last three months of 2012, meaning that the economy flat-lined over 2012 with GDP 2.3 per cent lower than at is 2007 peak.
The sector data showed that contractions in the production industries contributed to falling output over the quarter, declining at quarter-on-quarter rate of 1.9 per cent, revised down marginally from a contraction of 1.8 per cent.
The services sector also proved to be a drag on growth as output fell by 0.1 per cent, having been previously estimated to be flat.
Samuel Tombs, UK economist at Capital Economics, added that, as anticipated, the overall quarterly drop in GDP was left unrevised as the consensus had anticipated.
He said: “Admittedly, the expenditure breakdown painted a slightly more encouraging picture by showing that, excluding inventories, GDP was flat. Given that the inventories component of GDP is volatile from quarter to quarter, there’s little reason to expect this drag to persist.
“Nonetheless, the breakdown also showed that GDP was supported by probably unsustainable growth in household and government spending, which rose by 0.2 per cent and 0.6 per cent respectively.
“Given the likely intensification of the squeeze on households’ real pay this year and further austerity, we doubt that spending in these areas will continue to grow. Meanwhile, with the business surveys suggesting that output has been stagnant at best at the start of 2013, a triple-dip recession can still not be ruled out.”
Colin Edwards, economist for the Centre for Economics and Business Research, said: “Today’s confirmed output contraction comes after a week which has brought little to cheer for in the UK.
“Debt continues to climb – total public net debt (excluding financial interventions) now stands at 73.8 per cent of GDP – while on Friday the UK lost its much coveted AAA credit rating. This apparent loss of investor appeal has since pushed the pound down by 2.6 per cent against the dollar.”
He believes that overall, the UK economy remains in a “fragile state”.
Mr Edwards said: “A percentage point revision to growth here and there would not alter the fact that output in the UK stands woefully below pre financial crisis levels - GDP in the UK is now over £1,000 lower per person in real terms.
“While early indicators suggest the UK will avoid a triple dip recession in Q1 this year, a continuing weak growth performance is likely to raise the prospect of further quantitative easing, while increasing resistance to further austerity measures going forward.”
