The UK economy contracted by 0.2% in the fourth quarter of 2011.
This is according to the first revised estimates for growth in gross domestic product (GDP) in the fourth quarter 2011, published by the Office for National Statistics (ONS) today (Friday 24 February 2012).
This revised estimate is unchanged from the preliminary estimate of a 0.2% contraction in the final quarter of 2011, published last month.
Warnings on austerity’s potential impact on economic growth
A number of official bodies have recently issued warnings on the potential impact of economic austerity measures on growth.
These include the following:
- Economic austerity is likely to produce further uncertainty as 2012 unfolds, Bank of England research suggests. Nearly half of UK households (48%) surveyed say they have been affected by austerity measures over the past year. But looking ahead, more than two-thirds of UK households (69%) expect austerity to affect them over the coming year. The three main expected effects of austerity are: higher taxes (cited by 32% of respondents), lower income (24%) and less spending on services used (20%). Fear of job loss is also prevalent, and rises sharply in households “that were reliant on the public sector for more than half of their income,” to around one in three.
- IMF Fiscal Affairs Department Head Carlo Cottarelli says: “The pace of fiscal consolidation in advanced economies in 2012 is already high. Too rapid consolidation, if economic growth slows, could exacerbate risks.”
- The ILO says: “Recently observed cuts in labour market spending, such as reduced support for programmes for young jobseekers in the United Kingdom, are likely to come with substantial long-term adverse consequences for labour market prospects.”
- “Expansionary contraction is oxymoronic although I don’t think you actually need the prefix oxy.” This is according to Harvard professor Larry Summers, speaking at last month’s World Economic Forum in Davos.
Osborne reaffirms faith in economic austerity measures
However, it is unlikely that Chancellor George Osborne will announce any rethink of austerity measures when he delivers his Budget 2012 speech next month (on Wednesday 21 March 2012).
Osborne once again reaffirmed his faith in economic austerity measures in a speech to the Asian Financial Forum in Hong Kong in January 2012:
[G]lobal confidence in a country depends on its determination to deal decisively with the challenges it faces – and by getting to grip with our debts, Britain has shown it is determined to do that.
What are your views on economic austerity measures?
So what do you think about economic austerity measures, and their implications for economic recovery?
To what extent do you think austerity might be constraining the ability of the UK economy to recover from recession? Or does austerity represent a dose of harsh but necessary medicine, required to rebalance the economy effectively?
- XpertHR economic commentary February 2012: Squeezed XpertHR’s February 2012 economic commentary – published to XpertHR’s Pay Intelligence blog – examines current threats to UK economic recovery, including the ongoing income squeeze.