GDP contraction piles pressure on Osborne to change course
'Austerity isn't working': 0.3% contraction renews calls for U-turn as Britain faces triple-dip recession
THE PRESSURE on Chancellor George Osborne to "ease up" on his austerity measures and switch to a Plan B that stimulates growth intensified today when GDP figures showed the economy had shrunk by 0.3 per cent in the fourth quarter of 2012, putting the UK on track for a dreaded 'triple-dip' recession.
The Guardian's economics editor Larry Elliott said the worse-than-expected contraction provided emphatic proof that the chancellor's austerity drive "had failed". Elliott said the public, credit agencies and the IMF knew it was a failure and "even George Osborne knows it, although he can't bring himself to admit as much".
The UK is "now halfway" to a triple dip recession, Elliott says, a dire outcome which will be confirmed if the UK's quarterly GDP result is also negative. (Two consecutive quarters of negative growth defines a recession.) The economy had "clearly lost momentum" in the final three months of 2012 after getting a "one-off boost" from the London Olympic Games, Elliott said.
The Office for National Statistics (ONS), which released the GDP result at 9.30am today, said national output was dragged down by maintenance delays at the UK's largest North Sea oil field. Manufacturing fell by 1.5 per cent, the services sector was flat and only construction output provided a glimmer of hope by rising 0.3 per cent.
The result, which one analyst described as a "shocker", pushed the value of sterling to a five month-low of $1.575, down from $1.581 before the ONS released the bad news.
Hugh Pym, the BBC's chief economics correspondent, says many analysts had expected the GDP number to be "closer to zero". While the sharp drop in the mining and quarrying sector (which includes North Sea oil) had wreaked the most damage on output, the result wasn't helped by the torpid performance of the services sector which is usually "dominant", but is clearly suffering from a "post Olympic hangover".
In political terms, the news is "a blow" for the government, which the Daily Telegraph points out had to defend its austerity programme yesterday against criticism from the International Monetary Fund's chief economist. Olivier Blanchard said the UK needed to reassess its fiscal policy and look at changes to tax and public spending.
The UK economy is now 3.3 per cent smaller than its peak in the first quarter in 2008 and has "recovered only about half" the output lost during the financial crisis. That's a "worse performance" than other major economies, the Telegraph says.
Alan Clarke from ScotiaBank told the paper the result was distorted by the bad news from the North Sea oil fields. If that disruption is taken into account "it's not as bad as the headline looks," he said. "But clearly it's disappointing."