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UK economy shrinks in final quarter of 2011

The UK economy shrank by 0.2 per cent during the fourth quarter of 2011, with negative growth blamed on “weakness” in the production sector.

The latest figures from the Office for National Statistics reveal that growth in the construction sector was “slightly negative” and flat in the services sector.

The GDP figure for the final quarter of 2011 meant the UK economy grew by 0.9 per cent in 2011 compared with 2.1 per cent in 2010.

The ONS says although employment grew in the three months to November, it was a “relatively modest” increase.

Howard Archer, chief European and UK economist at IHS Global, says: “The economy stuck one foot back through the recession door in the fourth quarter of 2011 as GDP contracted 0.2 per cent quarter-on-quarter.

“We suspect that the second foot will follow in the first quarter of this year as still pressurised and worried consumers limit their spending, businesses hold back on investment amid a currently very uncertain and worrying outlook, government spending and investment is pared down, and muted global economic activity dampens exports.”

He adds: “No details were released on the expenditure side of the economy, but we suspect that GDP was dragged down by weaker business investment and a running down of stocks.

“There could also well have been reduced government spending. The decline in GDP was likely limited by some growth in consumer spending given that retail sales rose 1.1 per cent in the fourth quarter and by a limited positive contribution from net trade.”

Archer says he expects the economy to stabilise towards the middle of the year with modest growth in the second half.

He adds: “Overall, we expect GDP growth to be limited to just 0.3 per cent in 2012, and the eurozone sovereign debt crisis continues to pose appreciable downside risks to the growth outlook.”


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