UK economy performs worse than expected in 4Q '11

Britain suffered a greater shrinkage in its economy than earlier estimated, in the last quarter of 2011, with a weakening services sector adding to concerns about its ability to return to the growth track in early 2012.

According to the Office for National Statistics, the economy shrank by 0.3 per cent between October and December last year, taking the annual rate of growth to 0.5 per cent. This undershot economists' projections for unrevised readings of -0.2 per cent quarter-on-quarter and 0.7 per cent year-on-year.

In addition to small downward revisions in government and private consumption a drop in the scale of contraction of investment, from -2.8 per cent to -0.6 per cent was also seen.

However, apart from the headline revision itself, the numbers did not give any clues of the fate of the economy in the first quarter, especially given that much would depend on government austerity measures which were still to kick in.

Most economists are factoring in a small increase in first quarter GDP, though some also believe that given the weak construction and consumption data in recent weeks, coupled with the prospect of disruption in the second quarter due to an additional public holiday, the case for the Bank of England to inject more stimulus to boost growth was became stronger.

According to Howard Archer, economist at IHS Global Insight, attention was now firmly focused on whether the economy had returned to growth in the first quarter; and, if it had, whether it could build on this in still difficult conditions.