Contraction blow to economy feared

Andover Advertiser: Chancellor George Osborne insists his austerity policies will create long-term growth Chancellor George Osborne insists his austerity policies will create long-term growth

Britain's recovery hopes are poised to receive another blow, with official estimates set to reveal a fresh contraction in the UK economy.

Experts believe gross domestic product (GDP) will have fallen by 0.1% in the final quarter of 2012, putting the country on course for an unprecedented triple-dip recession.

The economy would have to contract this quarter as well for it to be back in recession, but hopes of a rebound are fading after a snow-hit start to 2013, which some estimate cost Britain more than £500 million a day in lost output.

The fourth-quarter downturn would be a sharp reversal of the 0.9% recovery seen in the third quarter, when output was fuelled by one-off factors such as the Olympics and as the economy clawed back activity lost during the Queen's Diamond Jubilee holiday.

Bank of England governor Sir Mervyn King has already warned that the quarter would be "considerably weaker", while the IMF believes the UK contracted by 0.2% overall in 2012. It also expects expansion of just 1% during this year.

Friday's figures from the Office for National Statistics (ONS) represent the initial estimate of GDP and are subject to revision over subsequent months. But the run of gloomy economic indicators increases the threat to the UK's prized AAA rating, with all three major ratings agencies placing the country on negative outlook.

Chris Williamson, chief economist at Markit, said the AAA threat will "intensify significantly" if figures confirm a contraction at the end of last year. The CEBR economic consultancy believes the economy may have contracted by as much as 0.5% in the final quarter of 2012 and by 0.1% over the whole year.

Construction has so far been the only bright spot, according to recent industry surveys, with activity surging to a 15-month high in December. But it accounts for only 10% of the economy and the far bigger services sector has not fared so well.

Howard Archer, chief UK and European economist at IHS Global Insight, forecast a 0.2% fall in fourth-quarter GDP, but said Britain should narrowly avoid a triple dip.

He said: "We expect the economy to eke out modest growth around 0.2% quarter-on-quarter in the first quarter of 2013 and to continue to grow moderately thereafter, but the economy is likely to continue to find decent growth hard to come by for some time to come in the face of still-challenging domestic and global conditions."

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