Saturday 26 February 2011

British Economy falls even further!!!

The British economy shrank even more than first thought in the last three months of 2010, official data showed, sending alarm bells ringing about the recovery.

The new figure signals that even with the impact of the weather stripped out, the British economy did not just grind to a halt, but actually contracted 
Gross domestic product (GDP) fell 0.6pc quarter-on-quarter, the Office for National Statistics (ONS) said, a bigger drop than its initial 0.5pc estimate that had shocked markets.
The new figure signals that even with the impact of the weather – still put at a 0.5 percentage point hit – stripped out, the economy did not just grind to a halt, but actually contracted.
"The figures underline that the UK recovery is bumpy and that a return to pre-credit crunch, solid, consistent growth is by no means yet on the cards," said Charles Davis, managing economist at the Centre for Economics and Business Research.
The data lent weight to the argument that a rise in interest rates should be postponed, despite inflation having hit double the target at 4pc.
Adam Posen, the Bank of England rate-setter who wants conditions to be even looser, argued that inflation will not stay a problem for long, as pay growth will be "very low" for a couple of years.
On Friday money markets were factoring in a rise in the Bank Rate from its 0.5pc low by June, compared with recent expectations for a May move.
Economists had generally expected the GDP figure to stay unchanged. The ONS said the revision was mostly due to the huge but sluggish services sector, with retailers and business and financial services companies suffering more than first thought.
George Osborne, the Chancellor, said the data "didn't change the fact" that the fourth quarter disappointed, but Ed Balls, Labour's Shadow Chancellor, said it confirmed that the recovery has "stalled" and that the UK needs a change of course.
The GDP breakdown in terms of spending showed that only government outlay made a positive contribution to the economy, rising 0.7pc quarter-on-quarter.
This support from the state will prove to be shortlived and raises concerns about the cuts programme, said economists.
Stuart Green, an analyst at HSBC, said the surge "clearly questions both the degree of progress made on fiscal consolidation and how the economy will perform once the bigger squeeze begins around the middle point of this year".
Net trade kept dragging on growth, as imports grow faster than exports. Business investment, intended to be the other prong of the UK's growth strategy, fell 2.5pc, although companies kept growing their cash piles, suggesting caution was stopping them investing.
Last year's GDP peak was also revised downwards – again – from 1.1pc to 1pc growth in the second quarter. For the year as a whole, growth was just 1.3pc.
The British Chambers of Commerce said the data flagged up the need for next month's Budget to offer policies that support growth.
Meanwhile, Paul Fisher has been reappointed for another three-year

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