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Friday 28th of January 2011
January 25, 2011    

UK economy sees shock 0.5% contraction in Q4

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by Kay Murchie

The Office for National Statistics (ONS) has today revealed the UK economy contracted by 0.5% in the October to December period.

The figures shocked economists who had expected growth of between 0.2-0.5% following growth of 0.7% in the third quarter and 1.1% in the April to June period.

Meanwhile, economic growth rose by 1.7% on an annualised basis.

Analysts had expected economic growth to slow – in light of the Government’s massive spending cuts – designed to bring down the budget deficit.

However, the results came as a surprise to many but have been attributed to the poor weather late last year.

Today’s estimate of GDP is the first of three and the figures could be revised up or down in the coming months. At this stage, only 40% of the data is available.

Should growth slow further in the coming months, there is a possibility that the Bank of England may restart its quantitative easing (QE) scheme to boost growth within the economy.

However, today’s figures are likely to raise fears of a double dip recession since growth is expected to slow even further in the first half of 2011 as the spending cuts and the recent VAT hike add to pressures on the economy.

The figures will also present the Bank of England with a dilemma as it comes under pressure to raise interest rates to combat stubbornly high inflation.

However, the central bank will be reluctant at this stage to lift interest rates when the recovery is losing momentum.

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