UK Economy Shrinks in Fourth Quarter of 2010

Shocking new figures were released yesterday by the Office of National Statistics suggesting the British economy shrank by 0.5% in the fourth quarter of last year. Severe cold weather has been blamed as the chief cause of this contraction but these statistics make grim reading for The Government, whose programme of major spending cuts is due to come into effect in the spring.

The news has further aggravated concerns that Britain will encounter a ‘double-dip’ recession. Some are also suggesting we can expect a period of stagflation, where sluggish growth is accompanied by severe price rises. Inflation in December hit 3.7%, well above the government’s 2% target.

The pound suffered in the currency markets following the announcement, falling 2.5 cents against the dollar and 1.4 cents against the euro. Whilst manufacturing is said to have remained fairly resilient the contraction has been particularly bad for the construction industry, which has experienced a 3.3% decline.

The Chancellor of the Exchequer, George Osborne, appeared undeterred in his plans for spending cuts, suggesting that the weather was mainly to blame rather than a weakness of the economy.

“There is no question of changing a fiscal plan that has established international credibility on the back of one very cold month. That would plunge Britain into a financial crisis. We will not be blown off course by bad weather,” he said. Some commentators have claimed the figures cast doubt on The Government’s austerity plans, however.

“With families and businesses already facing both rising unemployment and rising inflation, the fact that the economy is now shrinking means the Conservative-led government's claims to have saved the economy and secured the recovery will ring very hollow indeed,” claimed newly appointed Shadow Chancellor Ed Balls.