InvestmentsJan 28 2013

GDP contraction raises triple-dip spectre

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Economists have said a triple-dip recession is on the cards for the UK economy after preliminary estimates pointed to an economic contraction in the final quarter of 2012.

The Office for National Statistics estimate put UK GDP growth at -0.3 per cent in the last three months of 2012.

The UK did not enter a technical recession – defined as two consecutive quarters of negative GDP growth – because earlier data revealed 0.9 per cent of GDP growth in the third quarter of last year.

However, growth is expected to continue to be lacklustre at best and potentially contract forcing a triple-dip recession.

Azad Zangana, European economist at Schroders, reaffirmed this view.

“Now that a negative GDP figure has been recorded, there is a significant risk that the UK economy suffers a triple-dip recession,” he said.

“Weak underlying economic activity coupled with the disruption of recent poor weather could cause GDP to fall in the first quarter of 2013.”

David Tinsley, BNP Paribas economist, said the fourth-quarter numbers were a “shade disappointing” considering he was expecting a 0.1 per cent contraction. He said he now viewed a triple dip as a real possibility.

“There could be a triple-dip in play now, and these figures keep the political heat on the chancellor,” he said.

“The purchasing manufacturers’ index comes out again in a few weeks and if the numbers are weak we could get more quantitative easing in May.”

Vicky Redwood, chief UK economist at Capital Economics, said the drop between the third and fourth quarters was largely down to the fact that the Olympics had provided a strong boost.

“Admittedly, the drop primarily reflected the unwinding of the boost from the Olympics Games – we estimate that this probably knocked 0.3 per cent to 0.4 per cent off GDP in the fourth quarter,” she said. “But even accounting for that, underlying output still looks as though it is just stagnating.”