UK economy back in negative territory, as GDP contracts by 0.2% in Q4 2011

Black Hole MilkywayThe UK economy has slumped back into negative territory.

The economy shrank by 0.2% in the fourth quarter of 2011. This is according to latest estimates of growth in gross domestic product (GDP) published by the Office for National Statistics (ONS) today (Wednesday 25 January 2012).

Osborne: Negative GDP growth is ‘disappointing but not totally unexpected’

The BBC reports, that Chancellor George Osborne has described today’s figures as “disappointing but not totally unexpected.”

Osborne said:

[The GDP figures for Q4 2011] are not entirely unexpected because of what’s happening in the world and what’s happening in the eurozone crisis. The truth is that dealing with those problems is made more difficult by the situation in the eurozone.

In contrast, Duncan Weldon argues (via the TUC’s Touchstone blog) that “the economy was already stagnating well before the Eurocrisis. The stagnation in the service sector at the end of 2011 is part of a long-running collapse in domestic demand. Something that can’t be blamed on Europe. Exports prevented us from falling into recession in 2011, that prop to growth now seems unlikely.”

Revised estimates for growth in the third quarter of 2011remain unchanged from those published just before Christmas, at 0.6%.

It should be borne in mind that the lapse into negative territory in Q4 2011 does not necessarily mean that a double-dip recession is inevitable. The technical definition of a recession is two successive quarters of negative GDP growth. It is possible that estimates of GDP growth in the fourth quarter of 2011 will be revised upwards in subsequent data releases, taking it back into positive territory.

Did public sector ‘day of action’ cause negative growth in Q4 2011?

ONS points to the public sector unions’ ‘day of action’ in protest at planned pensions cuts (which took place on 30 November 2011) as a possible cause of the lapse into negative growth in Q4 2011. It says:

The public sector strike on 30 November is likely to have had some impact on GDP in the fourth quarter. It is not possible to measure the effect on GDP directly. Information from the ONS’s Labour Disputes Inquiry, which was published as part of the Labour Market release on 18 January, suggests that nearly one million working days were lost, representing about 0.2% of the total number of working days for the public sector for the quarter.

It is interesting to contrast ONS’ potential explanation for negative growth being primarily caused by the ‘day of action’ with recent research from BT Expedite, which suggested that “Wednesday November 30, the day many workers across the UK took industrial action, was the most popular online shopping day in 2011.”

What can we expect from UK economic growth in 2012?

So what might we expect from UK GDP growth over the course of this year?

ONS publishes its preliminary estimate of UK economic growth in the first quarter of 2012 on Wednesday 25 April 2012.

As we recently noted, growth in the second and third quarters of 2012 could also be boosted by an “Olympic bounce.”

Here is a round-up of latest forecasts for UK GDP growth in 2012:

See also:

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