Recession fears as GDP falls
The "dire" decline in the UK's economic output could mean a recession is on the way, it is claimed.
"The dire monthly output data for the early part of the quarter had implied that the economy contracted in Q4, so the figures don't come as a huge surprise," said Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club.
According to data from the Office for National Statistics (ONS), UK economic activity shrank by 0.2 per cent in the last three months of 2011.
The drop is worse than expected as gross domestic product (GDP) expanded by 0.6 per cent in the third quarter of last year.
"The only crumb of comfort we can draw is that the monthly services data rebounded in November. With the surveys also having strengthened in December, it gives us some confidence that we may be over the worst," added Goodwin.
Michael Ward, president of the Birmingham Chamber of Commerce Group (BCCG), said consumer demand was falling as a result of wage restraint and inflation.
He added: "This has hurt consumption while the eurozone crisis has meant that the UK's key export market has been in a state of turmoil for much of the last year. Many businesses and consumers are retrenching and avoiding spending wherever possible."
The BCCG quarterly economic survey for the last three months of 2011 indicated businesses in the Greater Birmingham and Solihull Local Enterprise partnership (LEP) were seeing a slowing in export growth with 10 per cent fewer manufacturers reporting their export sales had increased in the fourth quarter compared with the first of 2011.
"It is vital that the Bank of England holds interest rates at their historic low of 0.5 per cent for the foreseeable future as any increase would eat into the disposable income consumers have left and would cause interest rates to rise on mortgages and loans.
"The Monetary Policy Committee must also expand its Quantitative Easing programme £50bn to £325bn. This would free up significant amounts of capital that could then be loaned out to businesses looking to expand."
Louise Bennett, chief executive of the Coventry and Warwickshire Chamber of Commerce, said: "We shouldn't get into a spiral of doom and gloom because of the negative growth in the final quarter as the issues affecting businesses have not changed.
"It should, therefore, be a wake-up call to government to start looking at new ways of supporting business to help them grow and take on new staff."
