UK GDP figure revised down further

Image caption,
Bad winter weather is blamed for the bulk of the UK economy's contraction at the end of 2010

The UK economy shrank by more than previously thought during the last three months of 2010, revised figures show.

Gross domestic product (GDP) slipped by 0.6% in the period, according to fresh data from the Office for National Statistics (ONS).

Its initial estimate had suggested the economy had contracted by 0.5% - with heavy snow blamed for the slump.

However the ONS said that the revision was not a dramatic one.

"It's not that much of a shock, this is a very small revision," the organisation's chief economist Joe Grice told BBC News.

"The snow effect we think is still 0.5%. On the basis of that, the economy is still flattish at minus 0.1%. The overall picture is still a flattish underlying economy in the fourth quarter."

The latest US GDP figures for the same period were also released on Friday and also revised down, from growth of 0.8% to 0.7%.

The pound fell slightly after the UK figures were released, to trade at $1.607, down 0.5 of a cent. Against the euro, the pound was unchanged at 1.17 euros.

Weak construction

The ONS statement said that production industries, which include manufacturing and mining, had grown slower than previously estimated.

The service sector had also contracted by more than first thought, by 0.7% rather than 0.5%, the ONS said.

But the slump in construction had not been as bad, with the output of the industry declining by 2.5% rather than 3.3%.

GDP figures for a particular quarter are produced first as a so-called "flash" estimate, and are later revised at least twice as more detailed information is collated.

Shadow chancellor, Ed Balls, said the latest figures were "disappointing".

"Of course, we should always treat one quarter's figures with caution, but it is not cautious for the Treasury to plough on regardless," he added, accusing Chancellor George Osborne of "being complacent now in refusing to accept that his choice to cut too deep and too fast is holding back our economy and putting jobs at risk".

However Chief Secretary to the Treasury, Danny Alexander, said he expected the economy to recover.

"Of course, as we have said before these figures are disappointing. We have got to deal with the fact that we have inherited an enormous budget deficit - the previous government maxed out the nation's credit card.

"But we have also got to do what we can to support the economic recovery. The early survey data suggests that the economy is able to bounce back and we are going to continue to do everything we can to support that."

One small business lobby group, the Federation of Small Businesses (FSB), said the weak figures meant the government should do more to help.

"We need to see the government use next month's Budget to provide economic stability," said FSB chairman John Walker.

"The government does have tools at hand to help boost the confidence of small firms, such as extending the National Insurance holiday to existing businesses that take on new staff and keeping to its manifesto promise and introducing a fuel duty stabiliser."

Negative contribution

Media caption,
Joe Grice, Chief Economist at the ONS: It is 'a very small downward revision'

The BBC's economics editor Stephanie Flanders cautioned against reading too much into the revision.

But she added that there was some "bad news" in the figures, especially the 2.5% decline in investment, which is considered an indicator of future business activity.

She added that net trade, once again, had made a negative contribution to the recovery - with exports growing 2.3%, but imports up 3%.

ING economist James Knightley said he expected the economy's poor performance to continue.

"The detail shows that government spending was the only positive growth driver. This is fairly worrying given we know about the wave of fiscal austerity that is now starting to hit the UK economy, meaning that we will soon be starting to see negative figures for this component."

Change of heart

Meanwhile Vicky Redwood, an economist at Capital Economics, said figures showing a worsening economics performance may cause a change of heart among those previously in favour of raising rates.

"The slight downward revision might give the more hawkishly inclined members of the MPC reason to pause for thought," she said.

Documents released on Wednesday showed three of the Bank of England's policymakers voted for a rate rise at their last meeting, with the remaining six Monetary Policy Committee (MPC) members voting to keep rates at historic 0.5% lows.

The minutes from the MPC's last meeting stressed that recoveries from recession were rarely smooth, so more weakness would not be unusual.

But it also said growth could pick up in the first quarter if the level of activity returned to normal after the snow, helped along by postponed expenditure.

They also indicated that those who had been against a rise in interest rates this month would consider changing their minds if GDP figures for the first three months of 2011 suggested the economy had picked up.

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