UK economy approaches technical recession with -0.3% 4Q 2011 GDP

LONDON | UK growth behaviour turned up worse figures than expected for the final three months of 2011. The Office for National Statistics published Wednesday its revised estimate for gross domestic production growth for last year’s final quarter, showing that the economy contracted by more than previously calculated. Q4 GDP was cut from -0.2% to -0.3%, with most of the downward update being made to household and government expenditure, while the contribution from inventories was increased.

In the City, Azad Zangana, European Economist at Schroders, remarked that the data showed weaker momentum heading into 2012. Growth for 2011 as a whole is now 0.7% rather than the previous estimate of 0.9%.

“In fact, not only was Q4 of 2011 revised down,” Zangana said, “Q1 was revised down by 0.2%, and Q2 was also revised down by 0.1%, which means the economy did contract in the second quarter of last year where it had previously thought to have been flat.”

Schroders stated that the weakness highlighted in the latest release was in combination with poor production and retail sales data so far, so it was 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.

Also, the asset manager firm predicted more QE action coming:

“In terms of monetary policy, the Bank of England will surely react to this by increasing the amount of Quantitative Easing if not at the next meeting, then certainly by May.”

Morningstar, a provider of stock market analysis, insisted that despite the UK’s GDP growth being revised downward,

“economists still expect the economy will have grown in the first three months of 2012, meaning there would not have been a technical return to recession.”

But there were more negative news today from the ONS. Business investment in seasonally adjusted chain volume terms fell by £1.0 billion or 3.3% to £29.7 billion when compared to the third quarter of 2011. Felicity Burch, economist at the manufacturers organisation EFF, pointed at the insufficient competition in the UK banking system, and the smaller proportion of non-financial businesses which have access to loans, bonds, and securitisation.

Sterling weakened 0.2 percent to 83.66 pence per euro at 7:58 a.m. London time. The pound has strengthened 0.2 percent so far this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar slid 2.6 percent and the euro gained 0.5 percent.