Britain is tumbling towards a historic triple dip recession, official figures revealed today.
The economy shrank by 0.3 per cent in the last three months of 2012 as the boost from the Olympics fizzled out.
The fall was worse than feared by many in the City and a hefty blow to Chancellor George Osborne’s economic strategy. Economists stressed that 2008-2012 was now the weakest four years of GDP performance in peacetime since the 1830s.
With the cold snap increasing the likelihood of another drop at the start of this year, there were growing fears of the first triple dip recession since records began in 1955.
Amid the gloom, Boris Johnson called for the Chancellor to inject billions of pounds into London housing and transport infrastructure to inspire a boom and ignite recovery. Mr Osborne today said Britain is facing “a very difficult economic situation” but is so far still vowing to stick by his austerity plans to deal with the debt crisis.
He said: “We face problems at home because of the debts built up over many years and problems abroad with the eurozone, where we export most of our products, in recession.
“Now we can either run away from those problems or we can confront them — and I am determined to confront them so we can go on creating jobs for the people of this country.”
But the Mayor’s intervention put the Chancellor under huge pressure to loosen his fiscal belt-tightening.
It came after Deputy Prime Minister Nick Clegg admitted the Coalition initially failed to invest enough in capital projects and followed advice from the International Monetary Fund’s chief economist to Mr Osborne to consider a change of tack in his March Budget.
Shadow Chancellor Ed Balls said: “David Cameron and George Osborne have been asleep at the wheel.
“They’ve spent the last six months obsessing about a referendum in five years’ time, not focusing on the problems in our economy today. And their decision in 2010 to raise taxes and cut spending further and faster choked off the recovery, as even Nick Clegg is now beginning to admit.”
The grim figures revealed there was no yearly growth from 2011 to 2012. But they came just days after another rise in employment — which the Treasury stressed was the “strongest yearly increase in jobs for over 20 years” — and shortening dole queues. A recession is widely defined as two consecutive quarters of negative growth.
The UK hit a double dip recession running into last year, contracting for three quarters in a row before bouncing back with Olympics-driven growth of 0.9 per cent in the three months to September.
But many economists believe that the first three months of this year will see another fall as millions of families struggle with their finances and snow disruption threatens to cost the economy an estimated £500 million a day.
Living standards are also continuing to fall, with inflation outstripping the average wage rise.
There are hopes that the eurozone is stabilising. But Scott Corfe, of the Centre for Economics and Business Research, said: “Worryingly, 2013 increasingly looks like another difficult year for the UK economy. We think that in some respects it could be more challenging than last year.”
Britain’s prized AAA status, which Mr Osborne has battled to protect, is also under threat.
The biggest drag on GDP at the end of last year came from the production and manufacturing sector, which saw output fall 1.8 per cent quarter-on-quarter, according to the Office for National Statistics’ initial figures. Mining and quarrying suffered the biggest drop in activity since official records began — down 10.2 per cent, due mainly to the shutdown of the Buzzard oil field in the North Sea amid extended maintenance work.
The powerhouse services sector, which accounts for 77 per cent of the economy, saw activity grind to a halt in the fourth quarter due to the absence of the Olympics boost in the previous three months. The only bright spot was the construction sector, which delivered a 0.3 per cent rise in output.
Once the two special factors — maintenance work in North Sea oil production and revenue from Olympic ticket sales — are stripped out GDP would have inched up but overall the picture for the economy is flat.
Britain last suffered such gloom in the Great Depression — but did experience difficulties in the Seventies, when the economy came very close to a triple dip recession, largely caused by the 1973 oil crisis.
CBI director-general John Cridland said: “Growth will continue fairly flat for winter but momentum will build later as the global economy picks up.”
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