The latest economic figures, published this morning, show that the UK economy fell by 0.5% in the last three months of 2010.
The biggest contributor to this quarterly fall was the construction industry, contracting by 3.3%.
Output in the service industry also decreased, by 0.5%. The production industries increased their output by 0.9% in the last three months of 2010.
Economists expected to see a preliminary growth figure of between 0.2% and 0.6% for the final quarter of last year.
Bad weather in December was thought to have had the biggest impact on these figures. The recently published figures for retail sales showed no change in volume year on year.
The bad weather is estimated to have caused this fall. Had the bad weather in December not occurred, which is a fairly academic argument, then it is suggested that economic growth would have been flat for the quarter at 0%.
Economic growth stood at 0.7% in the third quarter of 2010 and 1.1% in the three months before that.
The preliminary estimate published today will be revised on 25th February and the final number will then be published on 29th March.
We do not expect these revisions to result in significant change to the preliminary estimate published today. Previous revisions have resulted in an adjustment of up to 0.2% either way.
This worse than expected economic news makes it more likely that the Bank of England will keep interest rates on hold at 0.5%, not wanting to force the economy into another recession by increasing rates now.
Some commentators will naturally now raise the prospect of ‘stagflation’, where there is the combination of price inflation and economic stagnation.
Photo credit: Flickr/Martin Bamford
