This morning’s news that GDP contracted by 0.5 per cent means the economic recovery has ground to a halt, according to the Shadow Chancellor.
Reacting to GDP figures which showed the economy contracted by 0.5 per cent in the last three months of 2010, Ed Balls says they are worrying because they do not include the impact of the Government’s VAT rise.
He says: “It is clearly a matter of great concern Britain’s economic recovery has now ground to a halt. As the independent Office of National Statistics has confirmed, even after the effects of December’s bad weather, the UK economy saw no economic growth in the final quarter of 2010.
“But the numbers are all the more worrying because they cover the period before the Government’s VAT rise and sharp public spending cuts have even begun.”
Chancellor George Osborne says: “These are obviously disappointing numbers but the Office of National Statistics has made it very clear the fall in GDP was driven by the terrible weather in December.”
The ONS said that discounting the December snow’s effect on the numbers, growth would have been flat.
Osborne adds: “It is notable that sectors of the economy that are less affected by the poor weather, such as manufacturing, continue to perform strongly, helping re-balance our economy.”
Manufacturing was up 1.1 per cent, but mining was down 1.7 per cent and utilities were down 0.5 per cent. Inventories rose £300m on the quarter. UK’s trade deficit in real terms remained at £9.7 billion at the end of last year. Exports of goods and services rose 1.5 per cent. Imports rose 1.7 per cent.
Output in the production and service industries was revised down to 0.5 per cent respectively in the latest quarter. Construction output was also revised down to 3.9 per cent from 4 per cent.
Balls says the 1.1 per cent growth in the second quarter of 2010 shows the Government inherited an economy on the way up due to decisions taken while Labour were in office which were aimed at boosting the recovery.
He adds that today’s figures are the “first signs” of how Government policy will impact on the economy.
Balls says: “With families and businesses already facing both rising unemployment and rising inflation, the fact the economy is now shrinking means the Conservative-led Government claims to have saved the economy and secured the recovery will ring very hollow indeed.”
Osborne says: “It would be disastrous to change a fiscal plan that has established international credibility on the back of one very cold month. That would plunge Britain back into a financial crisis.
“We will not be blown of course by bad weather.”