Downgrade to growth triggers new fears of a double dip

ONS estimates 0.3 per cent fall between October and December, but trade balance improves

The economy shrank by more than expected in the final three months of 2011, heightening fears that the UK is returning to recession. There was a 0.3 per cent contraction between October and December, according to the Office for National Statistics, a worse figure than the statistics agency's previous estimate of a 0.2 per cent fall in output.

The downward revision came after statisticians identified a greater-than-expected decline in the output of the transport, communications and business services sectors. Financial services also dragged down the figure. The statistics also pointed to an intensifying squeeze on the finances of households, with real disposable income falling by 0.2 per cent over the three months, and by 1.2 per cent over the year as a whole.

"The weakness highlighted in this release in combination with the poor production and retail sales data so far for 2012 make it more likely than not that the economy also contracted in the first three months of this year, which would put the UK in a technical recession," Azad Zangana, a European economist at Schroders, said.

The ONS release, in addition, changed its estimates for growth over the preceding nine months of 2011. In the first quarter of the year growth was revised down to 0.2 per cent and the second quarter was revised down to a contraction of 0.1 per cent. Growth in the third quarter was revised up to 0.6 per cent. The result of all these changes is that the ONS now believes total growth over 2011 was 0.7 per cent, down from its previous estimate of 0.8 per cent.

The ONS's preliminary estimate of GDP for the first quarter of 2012 – which will be published on 25 April – is set to be closely watched. If that produces a negative figure, the UK will officially be back in its second recession in just three years. However, most analysts, encouraged by strong data from business surveys since the new year, are predicting that the economy will turn out to have returned to modest growth in the first three months of this year.

The Chancellor's independent watchdog, the Office for Budget Responsibility, has forecast that the economy will expand by 0.8 per cent over 2012 as a whole. But the Governor of the Bank of England, Sir Mervyn King, yesterday warned that GDP may shrink in the second quarter of this year, partly as a result of people taking time off for the Queen's Diamond Jubilee.

Today's disappointing GDP news was offset by reports of an improvement in the trade balance. Britain's current account deficit shrank to £8.5bn in the fourth quarter of 2011. The ONS also revised down its estimate of the current account deficit in the third quarter of the year to £10.5bn, down from a previous estimate of £15.3bn.

The improvement in the trade balance was driven by a fall of the UK's trade deficit – the surplus of imports over exports – and an increase in investment income from abroad. The UK's trade deficit fell from £8.8bn in the third quarter to £7.1bn in the fourth quarter. The income surplus rose to £4.6bn, up from £4bn over the previous three months.

The statistics agency now believes the overall current account deficit in 2011 was £29bn – an improvement on 2010, when it was £48.6bn.

Howard Archer of IHS Global Insight said: "The fourth-quarter balance of payments data show a much-needed improvement. The economy could certainly do with more of the same in 2012 – an improving net trade performance and a pick up in investment income".

Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvDownton Abbey review: It's six months since we last caught up with the Crawley clan
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
premier league
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
people'I hated him during those times'
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
Dame Vivienne Westwood has been raging pretty much all of her life
peopleMemoir extracts show iconic designer 'felt pressured' into going out with Sex Pistols manager
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
fashionAlexander Fury's Spring/Summer 2015 London Fashion Week roundup
Arts and Entertainment
Lauryn Hill performing at the O2 Brixton Academy last night
musicSinger was more than 90 minutes late on stage in Brixton show
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
people''Women's rights is too often synonymous with man-hating'
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam