Last three months of 2011 worse than thought

Gross domestic product (GDP) – a broad measure for the total economy – declined by 0.3 per cent, the Office for National Statistics (ONS) said, downwardly revised from previous estimates of 0.2 per cent.

The ONS said there had been a slight decline in the services sector, which had initially thought to have been flat, while household spending was also worse than previously thought.

The third and final estimate from the ONS means the UK economy entered 2012 in a worse position than previously thought.

However, most economists think the UK will avoid another recession – defined as two quarters of back-to-back contraction – by returning to growth in the first quarter of 2012 after stronger industry data in recent months.

The economy is still expected to remain sluggish for the first half of the year as households continue to be squeezed by rising unemployment and as pay fails to keep pace with the rising cost of living.

The UK’s overall growth for 2011 as a whole was revised down to 0.7 per cent, having previously been thought to be 0.8 per cent, and way below long-term growth trends.

The Government’s independent watchdog, the Office for Budget Responsibility, estimates growth of 0.8 per cent for 2012.

Howard Archer, economist at IHS Global Insight, said: “The sharper-than-previously-reported drop in GDP in the fourth quarter of 2011 is obviously disappointing but it does not fundamentally change the story of an economy that saw fitful and muted overall growth in 2011, with a relapse in activity at the end of the year.

“Attention is now firmly focused on whether the economy has returned to growth in the first quarter – and, if it has, can it build on this in still difficult conditions?”

The fall in GDP in the final quarter of 2011 was largely driven by falling business investment, while the production sector, which includes manufacturing, declined 1.3 per cent, although this was slightly better than previously thought.