THE BRITISH Government’s economic strategy was thrown into major difficulties yesterday after it emerged the UK’s economy’s shrank in the last three months of 2010.
The release of the figures raised fears the country could be heading for a “double-dip” recession, worsened by State spending cuts and higher taxes, including VAT.
According to Office of National Statistics figures, the size of the economy contracted by 0.5 percentage points, compared to forecasts from economists that it would have increased by 0.4 per cent. The contraction brought the figures for 2010 as a whole down to 1.4 per cent, far below the predictions used by the Treasury.
Blaming heavy snows in December, the Chancellor of the Exchequer, Mr George Osborne said: “We have had the coldest weather since records began . . . and this has clearly had a much bigger impact on the economy than anyone expected.
“It’s notable that sectors of the economy that are less affected by the poor weather, such as manufacturing, continue to perform strongly.”
However, he insisted the British Government would not reverse its economic strategy. “There is no question 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.”
The fear now is that the UK is heading back into recession – where the economy shrinks in each of two quarters. Last night, Labour shadow chancellor, Mr Ed Balls claimed that he had been vindicated by the ONS statistics.
Former Bank of England adviser Professor David Blanchflower said: “The GDP growth numbers . . . are disastrous. The weather obviously played a part but it is quite clear that the economy is slowing sharply even before the vat increase hits.
“The UK appears headed back into recession. The coalition’s economic policies are in disarray,” he said.
The IMF displayed a more confident attitude, predicting the UK will grow by 2 per cent this year and 2.3 per cent in 2012 as it issued more negative predictions for other countries, such as Spain.
