UK economy shrinking again as triple-dip spectre looms
Britain faces the possibility of an unprecedented triple-dip recession after the economy shrank 0.3% in the final three months of 2012.
Labour instantly tore into the coalition's deficit reduction agenda, calling for George Osborne and David Cameron to abandon their programme of harsh spending cuts which the opposition blames for the faltering UK economy's performance.
The Office for National Statistics (ONS) said this morning the negative GDP growth seen in the fourth quarter was unlikely to be corrected back into positive territory.
That means another quarter of economic contraction in the first three months of 2013 would leave Britain facing a third recession. With disruption caused by heavy snowfall in January, analysts believe that is a distinct possibility.
Several high street names have already paid the price for a disappointing Christmas period. The first few weeks of 2013 saw a number of household brands going under with Jessops, HMV and Blockbuster following in the wake of Comet just before Christmas in calling in the administrators.
Business leaders reacted gloomily, acknowledging the "disappointing note" 2012 had ended on.
CBI director-general John Cridland said: "We think growth will continue to be fairly flat through the winter but momentum will gradually build later in the year, as the global economy picks up a little and confidence lifts."
Late maintenance on North Sea oil fields hit the mining and quarrying sector in the final quarter of 2012, knocking an extra 0.2% off GDP.
The boost to the economy provided by the Olympic Games also raised the bar and made comparable growth harder, the ONS' Joe Grice said. GDP was broadly flat when compared with the fourth quarter of 2011.
In the fourth quarter the production sector shrank by 1.8%, with manufacturing falling by 1.5%. Construction rose 0.3%, however.
The news came as the first cracks began showing in the coalition's confidence that its deficit reduction programme dominated by harsh spending cuts. Deputy prime minister Nick Clegg admitted in an interview published this morning that capital spending may have been cut too drastically when the Tories and Liberal Democrats entered government.
Osborne was in no mood for flinching ahead of today's figures, however. Speaking at Davos, he insisted the UK government was making progress in drawing down the deficit.
"The rebalancing is happening, the jobs have being created and another encouraging sign is the rate of new company creation in the UK is at its highest rate on record," the chancellor argued.
But shadow chancellor Balls hit back by claiming today was the moment when Cameron and Osborne's "complacency" had been exposed.
"These deeply disappointing figures expose just how dangerously complacent the prime minister was when he said last autumn that the 'good news will keep coming'," Balls commented.
"Today's news confirms what business leaders, retailers and families have known for many months – that depressed confidence and a chronic shortage of demand mean our economy continues to flatline.
"This government's failing plan has now seen our economy stagnate for over two years and borrowing is now rising as a result."
Earlier this week the IMF, a long-standing supporter of the coalition's deficit reduction agenda, switched its view and called for an alternative approach from the government.
"The longer David Cameron and George Osborne cling on to their failing plan the more long-term damage will be done," Balls added.
"They must finally listen and act to kick-start this economy."
Some have suggested the intense political reaction to today's figures may be a little exaggerated, however.
Monument Securities' chief economist Stephen Lewis was quoted by Reuters as saying: "These terms double-dip, triple dip, they're really political rather than economic."
"Really what we're in is a depression. Politicians will never acknowledge the fact we are in a depression, which is a situation where pulling the policy levers doesn't result in an improvement in the situation."