Shock figures for economy fuel concerns on recession

FEARS of a double-dip recession rose yesterday after surprise figures showed the British economy shrank in the final quarter of the year.

The Government admitted the figures - which revealed the economy shrank by 0.5 per cent between October and December - were disappointing, but Ministers insisted they would not deviate from their plans for massive cuts in public spending this year which they believe are vital to getting the economy back in shape.

Labour Shadow Chancellor Ed Balls seized on the data, which were far worse than had been expected, claiming that coalition Government boasts to have saved the economy from the brink of disaster "ring very hollow".

Hide Ad
Hide Ad

The figures will also add to the troubles for Bank of England Governor Mervyn King, who is charged with bringing rising inflation under control as well as supporting growth. Economists warned yesterday it meant interest rate rises would be off the agenda until the economic recovery was back on track.

The severe weather last month was blamed for the figures, which shocked analysts expecting growth of between 0.2 per cent and 0.6 per cent, although without the weather growth would still have been flat.

There was a decline in the key services sector which makes up more than 75 per cent of the total economy, but manufacturing continued to grow.

Chancellor George Osborne insisted his plans would not be "blown off course by bad weather".

Hide Ad
Hide Ad

The statistics came before the severe public spending cuts bite, many public sector budgets facing big cuts in April. Mr Osborne said: "There is no question of changing a fiscal plan that has established international credibility on the back of one cold month. That would plunge Britain back into a financial crisis."

Mr Balls said: "With families and businesses already facing both rising unemployment and rising inflation, the fact that the economy is now shrinking means the Conservative-led Government's claims to have saved the economy and secured the recovery will ring very hollow indeed."

The chief European economist at Capital Economics, Jonathan Loynes, described the figures as "shockingly bad" and said they raised "serious concerns over whether the economy is in a strong-enough position to withstand the fiscal tightening".

But CBI chief economic adviser Ian McCafferty said: "On this data it is far too early to conclude that the UK economy faces a serious double dip." Comment: Page 12.

Jonathan Reed Political Editor

ed balls: Government claims to have saved the British economy...will ring very hollow indeed.