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31 January 2011

UK Economy Shrinks

The UK economy shrunk dramatically in the final quarter of 2010. Against expectations of continued growth, Gross Domestic Product (GDP) is estimated to have shrunk by 0.5 per cent. 

The cold weather experienced before Christmas had a significant impact however the Office of National Statistics (ONS) suggested that even without the snow the economy would not have grown. 

Ahead of a year which will see further spending cuts implemented as well as the effects of a higher rate of VAT, concern was expressed about the prospects for the British economy. 

In response to the announcement Chancellor of the Exchequer George Osborne said: "These are obviously disappointing numbers but the Office of National Statistics has made it very clear that the fall in GDP was driven by the terrible weather in December." 

Ed Balls, Labour's newly-appointed shadow chancellor, criticised the coalition government for having failed to secure the recovery. "The fact is the recovery has completely stalled in the last three months of last year. This is an economy which was growing in the middle of the year, which had now ground to a halt," he said.

Different sectors of the economy fared very differently, with manufacturing growing by 1.4 per cent but construction activity falling by 3.3 per cent. 

Mr Balls went on to say that the VAT increase would hamper growth in the current quarter and that it was not too late for the coalition to change their programme of spending cuts. Mr Osborne insisted that "there is no chance of changing a fiscal plan that has established international credibility on the back of one very cold month. That would plunge Britain back into a financial crisis. We will not be blown off course by bad weather".

Deputy Prime Minister Nick Clegg accepted that the cuts could have a chilling effect but criticised the Labour opposition for planning a programme of cuts from April 2011 and being unwilling to take the tough decisions. He said: "You would have had these choppy growth figures while having a sovereign debt problem too."