UK economy suffers shock Q4 contraction after snowy Dec

Britain's economy suffered a shock 0.5 percent contraction in the last three months of 2010 after December's heavy snow took a far harsher toll than economists had forecast, official data showed on Tuesday.

 
London: Britain's economy suffered a shock 0.5 percent contraction in the last three months of 2010 after December's heavy snow took a far harsher toll than economists had forecast, official data showed on Tuesday.

The figures will be bad news for the government which is due to start cutting public spending in earnest early in 2011, and will cast doubt on market expectations that the Bank of England will raise interest rates in the first half of the year.

The Office for National Statistics said that Britain's economy would have struggled to register any growth in the fourth quarter even without any snow disruption.

Economists had only expected growth to slow to 0.5 percent after 0.7 percent growth in the third quarter, though uncertainty over the impact of December's snow disruption meant the range of forecasts was wide, ranging from 0.1 to 0.6 percent.

The figures highlight the dilemma facing the Bank of England which needs to steer inflation back to target but is reluctant to raise interest rates when a sustained recovery is far from assured.

Growth is expected to slow even further in the first half of 2011 when a rise in VAT sales tax and an intensification of the government's spending squeeze add to the headwinds.

Separate ONS figures showed that Britain's public-sector net borrowing rose from a year ago to its highest December reading on record, though it fell from the all-time record reached in November.

Public sector net borrowing came in at 15.3 billion pounds in December, below the 18.1 billion pounds forecast but above December 2009's total of 14.3 billion pounds.

The government's preferred measure of borrowing, which excludes financial sector interventions, came in at 16.8 billion pounds, down from 21.0 billion pounds a year earlier.

For the year to date, this came to 118.4 billion pounds, and the Office for Budget Responsibility forecasts it will hit 148.5 billion pounds this fiscal year.
 
Bureau Report

 

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