UK Q4 GDP shocks with contraction of 0.5%; raises fears of a double dip recession
City Index January 25, 2011 9:01 PM
<p>UK fourth quarter GDP shocked investors today by posting a contraction in growth to -0.5% a full 1% worse than the market had expected and […]</p>
UK fourth quarter GDP shocked investors today by posting a contraction in growth to -0.5% a full 1% worse than the market had expected and this sent the pound sterling sharply lower.
The GDP figure is quite simply a shock to the system and heightens fears that the coalition governments’ austerity plan may well curb growth too excessively and send the UK into a double dip recession.
Today’s Q4 GDP reading creates a huge problem for the Bank of England in their attempt to curtail spiralling inflation which hit 3.7% last month as it lessens any room for flexibility on hiking rates earlier than possible. Perversely therefore, home owners may look upon today’s GDP reading with some positivity.
That said, let’s not get too far ahead of ourselves with this contraction in fourth quarter GDP just yet. This is only a preliminary reading and is liable to change next month, given the public admission of the difficulty the ONS had in attaining the number, whilst this may also tell more of a story about how the harsh weather over December affected business activity than of one about declining core strength in the UK economy. This view is reinforced by the Office of National Statistics who said that the bad weather contributed to most or all of the quarterly fall.