LONDON: Britain's economy shrank by a worse-than-expected 0.6 percent in the fourth quarter, official data showed Friday, as harsh wintry weather hampered prospects of a swift recovery.
Gross domestic product (GDP) -- the total value of goods and services produced in the economy -- contracted 0.6 percent in the three months to December, the Office for National Statistics said in statement.
The reading was revised down from an earlier estimate of a 0.5 percent fall, and marks the largest GDP drop since the second quarter of 2009.
"Today's figures show that the performance of the economy was even worse than we initially feared," said Hetal Mehta, UK economist at Daiwa Capital Markets Europe in London.
"Not only was the headline rate at which the economy shrank revised higher, but with the ONS maintaining that the weather knocked 0.5 percentage points off growth, the underlying position of the economy was clearly weaker than initially thought."
The downward revision for the October-December period was sparked by weaker-than-anticipated data from the construction industry and services sectors.
The sharp contraction followed expansion of 0.7 percent in the third quarter of last year. Market expectations had been for no change from the previous estimate, according to Dow Jones Newswires.
Friday's data sparked fresh speculation over a double-dip in Britain, after the economy had pulled out of a record-length recession in late 2009.
Barclays Capital analyst Blerina Uruci warned that the outlook was "worrying" because the data did not include the impact of the coalition government's deficit-slashing austerity cuts this year.
"The fact that government spending clearly provided some cushioning to growth last year is particularly worrying at a time when the most significant fiscal cuts in years are about to kick in," Uruci said.
Economists said the grim data would likely persuade the Bank of England to keep interest rates at the current record low of 0.50 percent, despite stubborn concerns over soaring inflation and rocketing oil prices.
"As it currently stands, today's report does not paint the picture of an economy in pressing need of higher interest rates, no matter how loud the hawks are currently shouting," added HSBC chief UK economist Stuart Green.
The Bank of England moved closer to raising interest rates on Wednesday, as minutes showed that three policymakers voted earlier this month to hike borrowing costs due to concerns over high inflation.
Three members of the nine-strong Monetary Policy Committee (MPC) called for the central bank to lift rates from a record low level, according to minutes from the February meeting. That compared with two rate hawks in January.
However, the MPC voted 6-3 to keep the central bank's key interest rate at just 0.50 percent, where it has stood since March 2009, as it balanced inflation concerns with worries over the recovery.
"Today's data will add to the concerns of the doves in the MPC who maintain that the recovery is still fragile, and will strengthen the case for a wait-and-see policy at least until it has become clear that the recovery is sustainable," added Uruci at Barclays Capital.
The ONS added Friday that GDP shrank 1.5 percent between October and December compared with the fourth quarter in 2009. That compared with the previous estimated contraction of 1.7 percent.
Comments
Comments are closed.