Business World

Wednesday 21 March 2018

UK economy shrank less than thought

There was a glimmer of light for the UK recovery today after revised figures showed the economy contracted by less than previously thought at the end of 2010.

The Office for National Statistics (ONS) said gross domestic product (GDP) fell 0.5pc in the snow-hit final quarter of last year - a slight improvement on the 0.6pc decline previously estimated.

The figure was revised partly as a result of greater investment from businesses, but economists said the figures still indicated a worrying loss of momentum at the end of 2010.

Today's data showed business investment was flat in the quarter, against the 2.5pc decline previously estimated.

Industrial production rose more than previously thought, as a recovering manufacturing sector continued to surge ahead.

And services and construction both fell less than previously estimated.

Despite the contraction in GDP being smaller than thought, the 0.5pc reduction is still the biggest fall since the second quarter of 2009. The ONS said the reading would have been flat without the impact of December's adverse weather.

Chris Williamson, chief economist at Markit, said: "The fourth quarter decline overstates the weakness in the economy, reflecting the bad weather at the end of last year, but is nevertheless still a dire reading compared to the UK's peers."

He added the prospects for the recovery were likely to be hampered by plunging consumer confidence as government spending cuts start to bite.

The ONS data showed the decline in household spending was worse than previously thought in the fourth quarter, revised to a fall of 0.3pc from a 0.1pc drop.

"With consumer spending accounting for around two-thirds of all spending in the UK economy, and household confidence having already deteriorated in March to the weakest since the height of the recession, growth looks likely to be subdued at best in the remainder of the year," added Mr Williamson.

Export growth was also marked down from 2.3pc to 1.7pc, dealing a blow to the government's efforts to rebalance the economy to be less reliant on imports.

The UK's current account deficit grew to £10.5bn in the quarter, its highest level for a year and a half and worse than forecast by economists. This was up from £8.7bn in the previous quarter.

Press Association

Business Newsletter

Read the leading stories from the world of Business.

Also in Business