The gloom over Britain's slowest recovery in a century is set to worsen this week with experts braced for the economy to slam back into reverse in the latest official growth forecasts.
Economists predict a 0.1 per cent contraction in UK growth between October and December, marking the worst fourth quarter of shrinking output in the past five and heightening the risks of an unprecedented triple-dip recession.
The latest economic woes – caused in part by a hangover from a particularly strong third quarter when the Olympics helped the UK to 0.9 per cent growth – are set to create fresh political embarrassment for Chancellor George Osborne, as well as casting doubt over his austerity strategy.
The figures – which many economists believe could be even worse – will darken the economic clouds caused by the collapse of a host of high-street names such as entertainment retailers HMV and Blockbuster and Jessops, the camera chain.
A 0.1 per cent decline would leave the UK stagnant for 2012, in the worst year for the economy since 2009, when output shrank 4 per cent. It would also leave the UK languishing some 3.1 per cent below its pre-recession peak in the first quarter of 2008, and makes this recovery slower even than the one after the Great Depression of the 1930s. All of the UK's main economic rivals except tsunami-hit Japan have reclaimed the ground lost to recession and pushed on.
Royal Bank of Scotland economist, Ross Walker, said: "The unavoidable conclusion is that this is a tepid and disappointing recovery. Everybody accepts that consumers were never going to lead this recovery but the performance of trade and investment has been disappointing."
RBS forecasts predict that a bounce-back for Britain's builders will be cancelled out by further falls in manufacturing output between October and December. A setback for the UK's services firms – accounting for around three-quarters of the economy – looks more likely after a surprise 0.3 per cent decline in retail sales during December and it could be enough to tip the UK economy back into the red, the bank says.
Fresh contraction will also put pressure on the Bank of England to expand its £375bn quantitative easing programme to pump cash into the economy. The Monetary Policy Committee has been reluctant to take further action while it assesses the impact of its Funding for Lending scheme but an exceptionally weak result could force its hand despite the risk of rising inflation this year.
ING Bank's UK economist, James Knightley, said: "We suspect the Bank has more work to do to stimulate the economy. We anticipate further QE, possibly in February."