THE UK economy shrank by 0.2% in the last three months of last year, according to figures released by the Office of National Statistics yesterday.
The contraction in gross domestic product was driven by a 0.9% fall in manufacturing, said the ONS.
Joe Grice, chief economist with the ONS said of the figures: ‘They are not entirely unexpected because of what’s happening in the world and what’s happening in the eurozone crisis.’
Graeme Leach of the Institute of Directors said: ‘We’ve taken one step towards a double-dip recession, and it’s now probably 50-50 as to whether we’ll take the second, with a fall in output this quarter as well.’
Federation of Small Business chairman John Walker said: ‘The fall in GDP confirms the ongoing fragile nature of the economy.
‘The figure is in line with a recent FSB survey which showed that confidence among small businesses plummeted in Q4, recording a score of -24.5, a fall of some 15 points from the previous quarter.’
On Tuesday it was reported that Britain’s national debt rose above £1 trillion in December for the first time.
This is the equivalent to £16,400 per person and 64.2% of GDP.
The International Monetary Fund has cut the growth forecast for the UK economy in 2012 to 0.6% from 1.6%.
According to the IMF, growth has been weaker than expected because of the ‘rise in sovereign yields, the effects of bank deleveraging on the real economy, and the impact of additional fiscal consolidation’.
The IMF warned that the world economy has fallen ‘deeply into the danger zone’.
Governor of the Bank of England, Mervyn King urged an audience of businessmen in Brighton not to ‘despair’, claiming that ‘all crises come to an end’.
Acknowledging a ‘ferocious squeeze’ on take-home pay, with the longest-running fall in wages since the 1920s, King claimed: ‘After the steepest downturn in output since the 1930s, the UK economy is in the process of rebalancing.’
He said: ‘the path to recovery is likely to be arduous, long and uneven. The position of the world economy, especially in the euro area, is serious.’
He warned that weaker inflation meant there was more scope for further emergency money printing.
The Bank of England is expected to inject billions of pounds into the UK economy through ‘quantitative easing’ in February, having declined to do so earlier this month.
Meanwhile, minutes from this month’s meeting showed the Bank’s Monetary Policy Committee found that ‘substantial risks’ to the UK economy remain and it will be some time before ‘uncertainties’ surrounding these risks are resolved.
The ‘uncertainties’ cited by the MPC included whether UK output would recover in 2012 and whether euro-area governments would be able to tackle their debts and balance their economies.