By: Dr. Mike Campbell
Data just released by the UK’s Office for National Statistics (ONS) has revealed that the UK economy contracted by 0.5% in Q4 2010. This has come as a shock to many analysts all of whom had been predicting slower, but positive growth within the 0.2 to 0.6% band.
The government has been quick to lay the blame on God (in the shape of one of the coldest, most snowy Decembers on record) and the opposition has been just as quick to apportion the setback to the government’s inept economic policies.
2010 was a surprising year for growth in that pundits had been expecting much weaker Q2 and Q3 performance than the economy actually delivered. The ONS data is preliminary in nature and subject to revision (two revisions will be announced a month apart), so things could be better or worse than currently painted.
Overall Declines
The construction sector contracted most in Q4, dropping by 3.3% over the previous quarter, but obviously a seasonal component may be playing a role here as winter approached. Growth was seen in the manufacturing, utilities and agricultural sectors, but it was not enough to offset contractions in other parts of the economy.
The Governor of the Bank of England, Mervyn King, has said that the real value of take-home pay for (most – bankers excepted!) UK workers has seen its longest decline since the 1920s. This is because wages have remained stagnant (by and large) and inflation has eroded their value. However, he reiterated his view that fiscal policy must support growth rather than prioritise the fight against inflation.
The value of Sterling has fallen sharply on Forex markets on news of the Q4 GDP figure.