The UK economy fell by 0.5% against forecast
The UK economy fell by 0.5% against forecast
The UK economy has suffered an unexpected contraction of 0.5% in the fourth quarter of 2010, leaving a meager 1.4% growth in the whole year. Although the harshness of this winter and had lowered growth expectations, analysts forecast that GDP would have grown between 0.2% and 0.6% in the fourth quarter and have been very surprised by the bad data ahead this morning by the National Bureau of Statistics.
The contraction has raised the specter of stagflation because it binds to another bad data revealed last week, inflation rose sharply in December to 3.7%. The combination of these two facts will lead to a serious dilemma for the Bank of England, which seemed tempted to raise interest rates to control prices but sees now that it may aggravate the problems of growth.
The fall of 0.5% in the fourth quarter follows a 0.7% growth in the third quarter and 1.1% in the previous quarter. The biggest drops have occurred in the service sector and construction, responsible respectively for a contraction of 0.4% and 0.2% in the overall economic activity.
The harsh winter of the British economy has also ruined forecasts that the International Monetary Fund has published today. The IMF believed that UK growth in the fourth quarter reached 2.8%, when the Bureau of Statistics estimated the British after the fall from the third quarter, only 1.7%. In total, the Fund anticipates an increase of 1.7% in GDP in the UK in 2010, which makes winter surprise 1.4%.
The bad data growth can also have serious consequences on the political and rekindle the debate that largely focused election campaign last May, while the Conservative Party called for immediately implement a drastic program cuts in public spending, Labour argued that the cuts should be delayed a year to consolidate the fragile recovery.
Aside from the debate between Labour and Conservatives, the new economic gloom threatens to lead to instability within the coalition of Conservatives and Liberal Democrats to govern the United Kingdom. Liberals defended as Labour, a prudent approach to public spending cuts through 2010 but at the time of agreeing the coalition agreed to the drastic adjustment advocated by conservatives. Took refuge in the debt crisis in the euro area to justify this change of position and the need to address a drastic program of spending cuts.
The bad data today unveiled amplifies the harsh statements made yesterday by Richard Lambert to leave the post of director general of the CBI British employers. Lambert accused the government of implementing the program of cuts for political reasons and not put enough emphasis on measures of growth that the country needs. Lambert explained that businesses support the adjustment in public spending but complained that the government "has launched a series of initiatives for political reasons, apparently without considering the damage they could do to business and job creation.""The cuts in public spending and private sector growth are two sides of the same coin," he warned.
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