Snowed under

25 January 2011 By Ian Campbell

Snow and ice were factors but the 0.5 pct contraction in the size of the UK economy brings on the serious risk of a double dip recession. The government will come under fire. The Bank of England’s inflation stance is vindicated. The pound will weaken further.

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The first release of UK gross domestic product figures for the fourth quarter of 2010 showed a contraction in the economy of 0.5 percent, confounding consensus economic forecasts of 0.5 percent expansion.

In the third quarter the economy expanded by 0.7 percent. The national statistics office judged that poor weather in December may have caused a loss of output of about half of one percent and that, without the snow, GDP would have been flat. Output in production industries increased by 0.9 percent while construction output declined by 3.3 percent and services output by 0.5 percent.

By comparison with a year earlier, overall GDP was 1.7 percent higher in the fourth quarter. The pound dropped by more than 2 cents against the U.S. dollar on the news, falling from over $1.60 to below $1.58.

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