Recession looms as GDP shrinks

by Simon Ward on 25 January 2012  |  4 comments
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First estimate of GDP for final quarter of 2011 shows a 0.2% contraction.

The prospect of a double-dip recession grew more likely today as the first official estimate for GDP in the final quarter of 2011 showed a 0.2% slump.

Two successive quarters of negative GDP would technically put the UK into recession.

The output of the production and construction sectors dropped, while the service industries were unchanged. However, this is only an initial estimate and revised estimates may show a slightly brighter picture.

By contrast, the economy grew by 0.6% in the third quarter of 2011.

Overall, GDP in the final quarter of 2011 was 0.8% higher than the snow-blighted final quarter of 2010.

The International Monetary Fund has revised its UK GDP forecast for 2012 as a whole down from 1.6% to 0.6%. It also forecast a "mild recession" for the Eurozone

Meanwhile, the meeting minutes of the Bank of England's interest rate-setting Monetary Policy Committee (MPC) show that some members of the committee think a further round of quantitative easing might be necessary.

The Bank is already committed to pumping £275 million into the economy via its current asset purchase scheme. But many experts believe a further round could be agreed on at February's MPC meeting.

The committee also voted unanimously to keep rates on hold at their record low of 0.5% in January. 

At a speech in Brighton, Bank of England Governor Mervyn King warned: "As we head into a challenging year for the world economy, we have seen more positive sentiment in financial markets, and, at home, a fall in inflation. But none of this implies that 2012 will be an easy year.".

More: Inflation falls in December | UK ‘already in recession’, say forecasters