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Cath Everett

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Negative figures raise fears of double dip recession


“Astonishingly poor” economic growth figures for the fourth quarter of 2010 have led to fears of further jumps in unemployment, particularly in the crucial services sector, over the year ahead.

According to initial figures from the Office of National Statistics, December’s snowy weather conditions were partly to blame for an unexpected 0.5% contraction in the UK economy, but the body warned that even without such disruption, growth would still be showing “a flattish picture”. The fall contrasts with a 0.7% increase in GDP in the third quarter of last year and is far worse than independent forecasters had predicted.
But Number 10 also refused to rule out the possibility of a second quarter of negative growth in the first three months of this year – the technical definition of a recession – raising the prospect of a double-dip.
To make matters worse, because inflation hit 3.7% last month, there were also mounting concerns over potential ‘stagflation’, an unpleasant mix of economic stagnation and inflation – a phenomenon that beleaguered the country in the 1970s and could further slow hopes of economic recovery.
David Kern, chief economist at the British Chambers of Commerce, described the fall in GDP as “worrying”. Although he pointed to strong growth in manufacturing, he said that the decline in service revenues were “of concern” and could have an adverse effect on jobs.
John Philpott, chief economic advisor at the Chartered Institute of Personnel and Development, on the other hand, branded the GDP figure as “astonishingly poor”. While it was too early to tell whether it amounted to a genuine economic contraction, signs of a significant slowdown raised the prospect of a “further significant rise in unemployment this year”, he said.
“Today’s GDP figure is consistent with the CIPD’s estimate that UK unemployment will reach 2.7 million by the end of 2011,” Philpott added.
As a result, he called on the government to reconsider its ’sat-nav’ approach to fiscal policy, which entailed taking a fixed course of public spending cuts and tax increases “regardless of obstacles and bumps in the road”. Such a policy was “not sustainable – particularly in the face of fairly large bumps like this,” Philpott warned.
“If the economy continues to underperform and unemployment soars in the coming months, the government will need to make clear that it is willing to adopt a more flexible policy for cutting the fiscal deficit,” he said.
But Chancellor George Osbourne and the prime minister’s spokesman both ruled out any change of course, blaming the worst weather for a century on the slowdown.
The news came only days after Richard Lambert, the outgoing head of employers’ lobby group the CBI, warned the government that it needed to come up with a strategy for growth rather than simply focus on budget cuts.


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