United Kingdom: GDP contracted unexpectedly in Q4
January 25, 2011
In the fourth quarter, GDP contracted 0.5% over the previous quarter in seasonally adjusted terms, based on preliminary figures released by the Office for National Statistics (ONS) on 25 January. The reading represented a sharp deterioration compared to the third quarter's 0.7% expansion and contrasted Consensus Forecast panellists' expectations that had the economy growing 0.5%. In annual terms, GDP grew 1.7%, down from the 2.7% increase observed in the third quarter. That said, the preliminary estimates are based on incomplete data and are therefore likely to change. A revised and complete set of data will be published on 25 February. The negative reading reflected a 0.5% broad-based contraction in the services sector, which contrasted an expansion of the same magnitude in the previous quarter. Furthermore, the construction sector, which had been an important growth driver in previous quarters (Q3: +3.9% quarter-on-quarter; Q2: +7.0% qoq), experienced a 3.3% decline in the fourth quarter. According to the ONS, the dismal performance was clearly affected by extremely bad weather and, taking out the effect of adverse climate, the reading would have been flattish. Contrasting the negative developments in the construction and services sectors, manufacturing gathered momentum. In the fourth quarter, manufacturing output increased 1.4% (Q3: +1.1% qoq), driving industrial production to a 0.9% expansion (Q3: +0.5% qoq), despite a drop in mining and quarrying output. Finally, the agriculture sector also picked up to expanding 0.3% (Q3: -0.3% qoq). Going forward, the panel anticipates growth to remain relatively subdued as the VAT hike and the fiscal austerity measures will likely dent growth in the coming quarters.