Britain's economy sees shock drop in Q4
By Christina Fincher and David Milliken |
January 26, 2011, Wednesday
|
Print Edition
Print Edition
BRITAIN'S economy suffered a shock 0.5 percent contraction in the last three months of 2010, with unusually poor winter weather accounting for only part of its first shrinkage in five quarters.
Construction and service sector output - dominant parts of the economy - posted big quarterly falls and the Office for National Statistics said even without the disruption from Britain's coldest December in a century, the economy would have struggled to register any growth at all.
"This is a horrendous figure. An absolute disaster for the economy," said Daiwa economist Hetal Mehta.
With UK inflation at 3.7 percent almost double the Bank of England's target, yesterday's shock figures raise the ugly spectre of stagflation and leave the central bank with an acute policy dilemma.
Sterling fell by a cent against the dollar on the data, which showed Britain's economy was in trouble even before the government starts to cut public spending in 2011.
January's rise in VAT will only add to the headwinds, suggesting there may be worse to come for the economy.
Gilt prices and short sterling futures rose as investors cooled hopes that the central bank would opt for an early rise in interest rates to tackle inflation that has consistently exceeded its target for most of the last three years.
Analysts' consensus forecast was for growth only to slow to 0.5 percent from 0.7 percent in the third quarter, though worries over the impact of December's snow disruption meant forecasts ranged from 0.1 to 0.6 percent.
The central bank should not raise interest rates until the first quarter of next year, according to Stuart Green, HSBC economist.
Construction and service sector output - dominant parts of the economy - posted big quarterly falls and the Office for National Statistics said even without the disruption from Britain's coldest December in a century, the economy would have struggled to register any growth at all.
"This is a horrendous figure. An absolute disaster for the economy," said Daiwa economist Hetal Mehta.
With UK inflation at 3.7 percent almost double the Bank of England's target, yesterday's shock figures raise the ugly spectre of stagflation and leave the central bank with an acute policy dilemma.
Sterling fell by a cent against the dollar on the data, which showed Britain's economy was in trouble even before the government starts to cut public spending in 2011.
January's rise in VAT will only add to the headwinds, suggesting there may be worse to come for the economy.
Gilt prices and short sterling futures rose as investors cooled hopes that the central bank would opt for an early rise in interest rates to tackle inflation that has consistently exceeded its target for most of the last three years.
Analysts' consensus forecast was for growth only to slow to 0.5 percent from 0.7 percent in the third quarter, though worries over the impact of December's snow disruption meant forecasts ranged from 0.1 to 0.6 percent.
The central bank should not raise interest rates until the first quarter of next year, according to Stuart Green, HSBC economist.
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