Economy shrinks by 0.5%

Initial economic figures for the UK surprised economists with the news that the economy shrank by 0.5% in the fourth quarter of 2010, and would have been “flattish” without the impact December’s bad weather.  This follows four quarters of growth and will raise concerns over whether the figures mark a short term blip or a worrying longer trend.

As the BBC reports, a surprise 3.3% contraction in the construction industry has worried analysts, whilst the strongest growth came from manufacturing.

Read more by or more about .
This entry was posted in News.


  • Deeply worrying, deeply unsettling and deeply, deeply critical that the Coalition responds with a growth strategy, instead of their increasing growth denial.

  • The denial is that the government can or should direct the private sector to “grow”. We do not live in a command economy. This is not a socialist state. What was Labour’s growth strategy in 2000, and how did that work out?

  • OK Jim.

    But directing the private sector to grow is the only srategy the Government has – and it’s been behind every single economic pronouncement they’ve made.

    Really and truly – looking to bring Labour into this is the wrong move at the wrong time.

  • I don’t know what to say, the measures already taken have not really started to impact as yet, we are looking at quite a lot of spending being taken out of the economy and yet the unemployment figures will rise as will the cost.
    It is very worrying, it could slip into recession very quickly, but it seems as though the government is not going to change course…

    Funny though I am sure within the last month or so we saw “now the economy has recovered” on this forum by Liberal Democrats, don’t figure.

    I think we are on a slippery downwards course, but that is just my opinion.

  • This is awful figures to have come out today, and deeply worrying for the coalition. Even without the bad weather, growth slowed to 0, if not slightly negative. With the VAT rise and public sector job cuts beginning this quarter, we could see further weakness in the UK economy, and there is now a real possibility of a double dip recession. The coalition need to start thinking seriously hard over how to create growth.

  • Correct me if i am wrong but every time these figures are announced they are later ‘corrected’ and in almost all cases that i can remember the finalised figure is better than the 1st ‘Best Guess’! And the true figures are never trumpeted in the press in the way the 1st bad guess is.

    Is it not time for people to stop being profits of doom? The future is talked down so much we iare in danger of actually making things worse by installing fear where there is no need to, making people uneasy and therefore unwilling to spend based only on Labours gloomy predictaions of which they have little or no basis in fact!

  • William.

    I agree

    But the issue is, it is the Coalition that are prophesising doom. They’ve done it, led by Osborne + Cameron throughout the election and carrying on since May. The constant references out of Coalition Minister’s mouths about Greece, sterling debt crises, austerity being essential, cuts being the only way, Ireland, no plan B, hard times to come etc etc etc have come to this.

    Like it or not – the Coalition have created this environment. Laying the recession purely at Labour’s door is being shown to have lost much of its impact with the electorate recently. That the Coalition have also have created the doom + gloom in the economy at present tells you all you need to know about whether Gideon, Nick, Dave, Vince ‘n’ Danny are really the right people to lead us out of this mess.

  • Cuse,
    I accept that the language used by the coalition is becoming repetitive and is no longer having an impact. Most people accept we are in a mess and action was and is needed. The coaltion have no need to tell people repeatedly that it is Labours mess, they already know it is. But it seems to me that any good news is being drowned out in the media, for example the good news on manufacturing although reported is not something that will be noticed by many. The media in my opinion are over covering any ‘Possible’ and ‘Future’ negatives to the virtual exclusion of ‘Real’ and ‘Now’ good news.
    I am no a denier of anything, I know that there are risks in the coalition stratagy and i am deeplty suspicious of all things ‘Tory’. I support the coalition right now because i genuinely believe that if we had a Labour government or a 100% Tory one then things would be a damn sight riskier.

  • toryboysnevergrowup 25th Jan '11 - 1:07pm

    So where is the OBR stripping out the impact of the weather so that informed decisions can be made? France also suffered from the weather but managed to post 0.6% growth in Q4 2010.

    As for the wait and see brigade – perhaps they should go and reread their Keynes.

  • The most worrying thing is that this is hitting prior to the majority of the spending cuts taking place.

    The chance for the retail sector is that as people have cut their cloth in advance things will not continue to slide. However, VAT, and the corresponding inflation rise could have a say in this.

    Cameron’s message was bit to “this Lady’s not for turning” for me. I would have preferred a message stating that it was far too early to change course but that the situation would be constantly monitored, blah blah blah.

  • @William – well you certainly have won the Labour Blame Top Prize with your statement: ‘. . . making people uneasy and therefore unwilling to spend based only on Labours gloomy predictaions of which they have little or no basis in fact!’

    However, returning to reality, it has to be remembered – like it or not – that the growth shown in recent quarters was very much as a result of Labour economic policy feeding through especially QE. But that has now ended and also this fact is playing its part in the economy flattening.

    I think the margin of error I heard this on telly morning for the result was given as 0.3 per cent although I wouldn’t swear to that as I was on the phone.

    I agree that looking at Labour’s growth strategy in 2000 takes us nowhere in the current climate – what we want to know is the Tory Government’s growth strategy now – the CBI attack of Cable’s department as just a ‘talking shop’ is very worrying because it should be a major centre for growth planning and incentive. If this was a political jibe then OK ignore it – but it wasn’t it comes from the top of the CBI.

    The weather factor was stripped our in arriving at the figures and it was given as 0.0 percent growth – zilch!

    The real interesting thing is the stagflation aspect although I previously thought much higher inflation rates were required but then in many ways we are in uncharted territory as we can’t be sure just how badly the economy will be hit by cuts particularly if the private sector can’t produce on new employment. And always look at the job announcement figures – a part-time shelf-stacker in a supermarket new job is not economically the same as a full-time highly paid professional losing their job even if that professional took the shelf-stacker position.

    Retail job announcements are notorious for being hot-air. Firstly you have to look at the FTE figure of the number they trumpet in press releases which are hugely inflated by giving the number of ‘jobs’ created when the overwhelming majority are part-time with as few hours as 5/6 a week. The other thing is after a new store opens and settles down the staff numbers are radically reduced. A huge con.

  • Leviticus18_23 25th Jan '11 - 2:02pm

    By the time Cameron & Clegg have finished, we’ll be grateful for a 35 hour shift at Foxconn making iPhones.

  • @Leviticus18_23

    No doubt paid like the hobby-style magazines which give you a ‘free’ bit of a model every week. Clegg/Cameron will reward workers with a bit an iFone in lieu of wages – they can do self-assembly at home after all as they’ve been trained to have new skills in the wonderful work experience – sans wages – provided by the government.

  • So how many quarters of contraction or minimal growth would be acceptable before the party switches back to it’s manifesto position. After all, it only took two quarters of growth before the previously derided rates of cuts became acceptible to Clegg, Cable, Laws and Alexander.

  • My point about looking at “Labour’s growth strategy” (I have no idea what they were saying in 2000) is merely to highlight the foolishness of believing in government-directed private sector growth, not to bash Labour. Can anybody point to any government spending from a decade ago, or two decades ago, which have had a lasting positive impact on private sector growth?

  • @Nigel Ashton

    Yea – could be revised to an even greater negative growth I suppose – I don’t think Cameron will allow Osborne to be laissez-faire over this one. He’ll be demanding that the growth White Paper (Another blank piece of paper with the time it’s taking to write it obviously) is beefed-up and issued yesterday 🙂

  • “2010 was a year of economic and political risks, out of which the UK emerged in much better than expected health. This is likely to be the year that recovery is entrenched. If so, growth will continue and the deficit will start to decline.”

    I quote David `laws on this very site a few weeks ago, well if a week is a long time in politics it’s just as long in economics. Does that not sound like the worst example of hubris imaginable? Really, him, Vince and Clegg should be ashamed of themselves. How many people have to point out that our economy is in the hands of a Lord Snooty figure who is both clueless and driven by a rotten ideology. I can only assume that a double dip recession is price worth paying and stagflation was plan B.

  • These figures were always on the cards and it will get worse because the govt will now seek bigger cuts and this will reduce the prospect of growth further. We will be in a race to the bottom. This is the real lesson from Ireland and we are following right behind. The govt have simply refused to learn the lessons of the 1930s and the damage that can be caused by following the methods of Osbourne and Cable.

  • Poppie's mum 25th Jan '11 - 4:50pm

    How many bad quarters results will it take before the Lib Dems U turn again [is there a word to describe a U turn on U turn ?] and admit that the actual cuts policy they won votes on, was far more sensible that what they are pushing on us now.

    Please don’t carry on with this macho p*****g contest.
    It won’t be people like Clegg, Cable & Alexander who will suffer.
    They are insulated from hardship, the poor devils, us the public are already suffering.

  • toryboysnevergrowup 25th Jan '11 - 4:58pm

    On the inflation side the point that has to be borne in mind that much of this is due to what is happening in commodity markets. Sure some of the spikes in prices can be put down to demand in China etc. but this has been a steady and pretty constant factor for many years and I’m sure that left to their own devices markets could send the appropriate signals. However, and awful lot of the price rises and volatility are due to speculative factors rather than pure supply and demand – for which hedge funds and others in the financial sector should be held responsible. In many commodity markets it is now not unusual for a substantial proportion of all open contracts to be held by a small number of investors who will never take delivery of the goods concerned. This is a problem for the UK – but it is even more of a problem for many in the 3rd World where the increased prices can mean the difference between life and death – and food riots are not uncommon.

    And although Cable made noises about this before the election – what has the coalition done about the problem since the election, either on its own or collectively with others. The short answer is precisely nothing – which is perhaps no surprise given Cameron’s and Osborne’s connections with hedge fund managers. A real mark of shame I’m afraid.

  • No Nigel – I’m afraid you’re wrong. Obfuscation doesn’t hide the fact that Lib Dem ministers like Danny Alexander, Vince Cable and Danny Alexander have been saying for months “we’re right, just you see”. Not to mention Norman’s “we’ve fixed the economy” comment.

    The revision will be missed by 99% of the population. It may put growth at 0% – which in itself would have been a massive shock. But there’s no hiding from the fact that the economy is under severe strain and the strategy must be questioned.

  • @N Makhno

    David Laws – remind me – is that the well-know and successful personal finance adviser?

  • I see the Coalition majority in the Lords has just dropped by one – funnily enough another personal finance expert.

  • @EcoJon
    “David Laws – remind me – is that the well-know and successful personal finance adviser?
    I see the Coalition majority in the Lords has just dropped by one – funnily enough another personal finance expert.”

    Ha, ha I liked that.

  • The real worry is how dependent our economy is after 13 years of Labour administration on mainlining increasing amounts of borrowed public money. The private sector is facing some serious cold turkey.

    It can’t be blamed on spending cuts – they haven’t even started yet. Clearly the household sector has been allowed to become so overindebted that it can’t play any role in the recovery.

    We are left with the corporate sector. It is Labour and the media that have been going on about a double dip, not the Coalition. How is that, plus the recommendation that we should abandon plans to sort out the deficit and let public spending rip, supposed to encourage business confidence?

  • @ Matt

    So you think business optimism would be buoyant if we had an out of control public deficit with no effective plans to control it, as Labour seems to be proposing.

    What precisely are their new plans for ensuring the public finances (which even the civil servants say were out of control under Labour) are sorted out?

    “When the Government announced its cuts at the CSR, we all knew that there where going to be job losses, Rises in VAT, Wage cuts, and the cost of living was going to go up.”

    So how is Labour intending to reduce our deficit without any of those things? No cuts, no tax rises, increasing real wages. So the deficit reduction comes from where exactly?

    Your position is pure, unadulterated hypocrisy.

  • James Sampson 25th Jan '11 - 8:31pm

    @ Robert C

    Posts like that do nothing to advance any grown up economic argument, it’s just the written version of the playground spat, very infantile!

    All parties have accepted the need for cuts in public spending and the reduction of the deficit, the argument has been about the pace and depth of the cuts. Let’s not forget, that we fought the election on broadly the same prescription as Alistair Darling, even though our Dear Leader had apparently already decided that was not our policy and had just forgotten to tell us.

    There is now growing evidence that such a major contraction in the economy at exactly the time that the economy is at it’s weakest, is precisely the opposite of what we should be doing. As much as I hate to agree with Mr Balls, it is patently clear that from the turn of last year GDP was growing, Inflation and unemployment both falling, stimulus and support was having an effect, this was EXACTLY what we were agreeing with prior to the election, why we decided to jetison that and throw our support behind discredited Tory plans is beyond me, but I fear we are beginning to see the result.

  • And just before we hear the weather excuse ad-infinitum, the ever-reliable Fact Check blows it.

  • dave thawley 25th Jan '11 - 9:28pm

    I think this means Our leadership need to resign – just like every other bit of news I’ve heard for the last 6 months it is a clear indication that they are not doing what we want them to do.

  • 9 months of growth, then a contraction. Norman Lamb told you “we’ve fixed the economy”. Cameron told us a month ago “we’re out of the danger zone”. Instead we find that Tory + Liberal policy is throttling growth.

    This cannot be explained by the weak and shameful excuses being bandied about by this increasingly pathetic Tory-led Coalition. Trying to say “Labour would have done this, Labour would have done that” is equally pathetic.

    The Lib Dems have gleefully jumped behind the Tories, claiming they were right all along. Now – you need to grow up and take responsibility. The consequences are too grim to think about if you believe allowing Gideon to destroy the UK once and for all is preferable to standing up and admitting “we were wrong”.

  • This is all very silly, Labour were going to make cuts, the big argument prior to the election was the pace of the cuts and the Lib Dems were more in line with Labour’s view than that of the Tories.

    Every serious economist said that a faster pace of cuts would hit growth, so it’s no real surprise that growth is being hit, the issue was whether it was worth that short term pain for long term gain, economists were split on this, several wrote to The Times prior to the election warning against the path the coalition are taking whereas others felt it was a worthwhile move.

    However, The Tories have trodden this path before and it didn’t work then, they tried it in the thirties and it did not work. The Tories, like Labour, keep making the same economic mistakes generation after generation, someone should bang their heads together, there was once a hope that that someone could be the Lib Dems but they’ve followed Tory policy hook, line and sinker.

    The CBI criticised the coalition not for the cuts, but for the lack of growth policy, cuts like these cannot and will not work without growth, the coalition seem to have forgotten that important step, as I said, The Tories have done this before, just as Labour forget that you’re supposed to cut when growth is good, that’s the step Labour always forget.

    If it wasn’t so serious it would be laughable, it’s the general public who have to pay for the failed policies of the two main parties, here we go again with it, when will this silly cycle ever end.

  • Anthony.

    I agree with you 99%.

    However, you cannot claim that these are the mistakes of the 2 main parties any longer. The Lib Dems have sought to claim credit for fixing the economy. They have built an economic strategy upon attacking Labour and claiming the Tories were right all along.

    The Party is keen to claim credit where it’s due. But it has also been far too keen to take credit where it’s not due – Trident and Ken Clarke’s justice reforms spring to mind. Here – it must take equal responsibility for it’s policies being demonstrably wrong.

  • @James Sampson: Excellent post!

  • Now the “fun” starts. We have a government that doesn’t have a clue re. economics – or anything else, add to that the fact that at the general election no party won – Labour, LibDems and the Tories all lost. Therefore not only do we have a clueless “coalition” (code for Tory government), that “coalition’ rules minus any kind of mandate. Enter Ed Balls, who, behind the verbal bluntness, is actually qualified in economics – unlike George, Nick or Dave or anybody else in the LibDem/Tory regime. Actually the way things are going Ed Balsl looks less like an economy-wrecker by the day.

  • The problem is that for too long the economy has been founded on a combination of current account public spending and consumer spending generated largely on credit card debt and the release of equity in property. This was never sensible. The Government is now correctlly trying to build an economy based on production and export. This will need time and will involve painful readjustment. I am not at the moment convinced that the pain is being shared fairly or that the policies are yet in place to ensure success.

  • @Roger

    I agree that the cuts haven’t been applied equally but are hardest on the poorest.

    But I have difficulty in accepting that: ‘The Government is now correctlly trying to build an economy based on production and export’ especially when he adds that he isn’t convinced: ‘that the policies are yet in place to ensure success.’

    He is not alone in his fears which have been given full voice by the CBI Boss in his valedictory speech which provides a platform to be not ony forthright but honest.

    There is no credible growth strategy and Vince Cable must bear an enormous part of the blame for that – as much as I despite this Tory Government – propped up by a compliant LibDem party – we need GROWTH or the working class will be paying for the bankruptcy of Britain for a helluva long time.

    As part of generating that growth there has to be an easing of public sector cuts which damage the economy – the LibDems have got to tell the government to stuff their idelology and backtrack a little to save the economy.

    To just sit tight and ignore what is happening and do nothing for pure party political experdiency is rank cowardice!

  • Anthony, Cuse et al. are quite right.

    Forget nit-picking about how provisional these figures are and face the fact that Coalition economic policy is deeply flawed, and having the baleful effect that many predicted when it was initially proposed. The figures give the lie to LD claims that there was no alternative; there was, and is.

    Even the good news from manufacturing is offset by the fact that it accunts for only 15% of the economy.

    Stop trying to blame the Labour Party, Gordon Brown, the wrong kind of snow etc. ; the Coalition medicine isn’t working…. do you have the guts to change the prescription?

  • dave thawley 26th Jan '11 - 12:53pm

    I unfortunately agree with you. What we are supporting the Tory party to do is reckless and we deserve to (and will) loose power for it. We have helped the conners to stitch the population up. What will happen is more privatisation while our life doesn’t get any better – in fact it is going to get a whole lot worse. I believed the lies our (lib dem) party were peddling abut this all being labours fault but I agree now (and so do the facts and statistics) that the problem was caused by rich bankers. Labour should have done something to stop them but the conners were not complaining either. Right now we are half way into the start of another recession. Let’s hope for all our sakes it doesn’t happen. I personally feel though the conners don’t mind – after all it will just be peoples lives wrecked and their rich mates will be around to make double the killing when things get better again.

  • dave thawley 26th Jan '11 - 1:03pm

    Also (already been said in different words)

    1) Bad weather caused this – if our economy is so fickle what on earth are we doing supporting taking billions out of it until it is more stable.

    2) Good news with manufacturing increasing – but what happens when unemployment continues to rise as the Tories sack the public workers – who will buy the goods to pay for the increase in manufacturing – I can smell another crash coming along.

  • Labour invested in the economy. Result: growth. The Tory dominated coalition have savagely cut that investment. Result: no growth. Anyone got an economics primer to send to Cameron, Osborne and Clegg?

  • Totally deluded comments from Labour supporters here.

    Economic growth under Labour came from building up debts, both public and private. Their answer now is to build up even more debt. How is that supposed to work?

    What the GDP figures show is how after 13 years of Labour, our economy is addicted to unsustainable deficits and goes cold turkey as soon as it tries to stay off it.

    This underlines what a total failure Labour was in government. Even if you say Labour was completely innocent of causing the crash, other economies like France and Germany are bouncing back better without massive public deficits (Germany 4%, ours 11%).

    So how precisely do you explain that?

  • This whole column seems to be becoming a playpen for Labour supporters to dole out abuse and and then they get huffy when someone argues back against them, running around shouting “He insulted me!”. James Sampson in particular really takes the biscuit. I am talking about people’s arguments, not them personally, and if they are rubbish, I will carry on saying they are rubbish. I am not insulting you personally, so get over it.

  • @ Matt

    “Basic economics:

    The role of government & BoE in the economy is to:

    1. Take the heat out of inflationary periods by taxing more, running a surplus and raising interest rates.

    2. Take the sting out of a recession by borrowing and spending more and BoE cuts interest rates.”

    Isn’t it a great pity then that Brown failed to do (1) by running a surplus in the boom, instead he ran a deficit of 2-3%.

    So therefore you are admitting that Brown didn’t follow even the most basic economic rules.

  • toryboysnevergrowup 26th Jan '11 - 4:20pm

    “The Government is now correctlly trying to build an economy based on production and export”

    So what measures/strategy do they have for achieveing it:

    Reduce the rate of domestic growth
    Reduce research expenditure in universities and make it more expensive for people to educate themselves
    Abolish regional development agencies
    Just encourage the banks to lend more to the corporate sector – net result they redcuce lending and increase their bonuses
    Take an axe to capital spending and infrstructure projects
    Just leave it to the same unregulated markets that couldn’t price the risk of private sector debt properly and led to most of the problems in the first place.
    Rely on a strategy of improving competitiveness by cutting real wages.
    Pretty much copy the Tory governments response to the Great Depression.

    Pure genius!

  • @ Robert C – 2.20pm

    From everything I’ve seen on this site, those in favour of the Coalition are quite as guilty as those opposed to the types of behaviour you describe; indeed hostility to those former supporters of the party for voicing criticism is frequent and often personalised and vitriolic.

    It’s fairly lame to add to the chorus of those who go on about Labour supporters, as though there were no former LD supporters with principled objections to what has happened since May 2010.

    You can’t have it both ways; either the forum is open to everyone to debate the issues, or it’s for members only so you can have a chat and reinforce your cosy certainties.

  • toryboysnevergrowup 26th Jan '11 - 5:19pm

    @ Robert C – Economic growth under Labour came from building up debts, both public and private

    Could I suggest that you go and look up some productivity growth figures and international comparisons thereof before making such broad brush statements. Just because it is a Tory mantra it doesn’t mean that it is correct.

  • “It’s fairly lame to add to the chorus of those who go on about Labour supporters, as though there were no former LD supporters with principled objections to what has happened since May 2010.”

    I am a former LD supporter (pre-may 5th) who would still argue on the same platform as the LDs did pre-election on many issues, I find it amusing that this position now makes me a ‘labour troll’ in the eyes of many and have been called so quite a few times. well I suppose if you give a dog a bad name…….

  • @ nige

    Just so… I’ve lost count of the number of times it’s happened to me in here, despite the fact I’ve never voted Labour and don’t plan to. It seems the modus operandi in here is that it’s OK for loyalists to attack you for being a Labour troll, but not OK for you to attack what Clegg and his enablers have done.

    The double standard is truly breathtaking.

  • Mark Pack, sorry I can’t resist.

    Care to comment on my forecasting now? Is one quarter good enough for you?

    I mean, Mervyn King said inflation would only be 1% round about now. And he agrees with your economic policy…

  • @Robert C the economy needs growth, without growth cuts do more harm than good. Labour didn’t cut when the economy was in a better position, that was the time to cut, that’s a fair charge to aim at Labour, but at this moment in time, the coalition are going down the wrong road and Labour, are right to suggest now isn’t the time for these cuts, whereas the coalition are right to point out Labour didn’t cut when they should have, but we have to deal with what’s happening now.

    The coalition need to back off on the cuts, stimulate growth, and then cut, when growth is much stronger.

  • @ Mark pack aswell
    Sorry Mark cant resist either .

    Do you still believe as you stated previously to me that its just a handfull of Lib dem malcontents that have grave doubts about such key coalition policies.

    I wonder what it will actually take before you have that ‘Crikey what have we done what have we become sort of moment ‘ .

  • @ John Fraser

    Being a Coalition loyalist it seems is much like being in a cult; it’s the LD equivalent of Kershaw’s “working toward the Fuerher”!

    The “oh no!”moment will come in due course, but probably not until after the May elections at the earliest. The question is whether anything can be salvaged from the whole sorry escapade, or whether the party does a Galadriel (“I will dimish and go into the West”) 😉

  • Andy.

    Well Said.

    the Oh NO moment has happened, I’m sure. The Party’s inability to avoid hubris means this won’t come out.

    What we’re waiting for is the Dear Leader to realise that he and his lackeys’ personal desires to be members of the Tory Party shouldn’t be confused with admitting you were wrong.

Post a Comment

Lib Dem Voice welcomes comments from everyone but we ask you to be polite, to be on topic and to be who you say you are. You can read our comments policy in full here. Please respect it and all readers of the site.

If you are a member of the party, you can have the Lib Dem Logo appear next to your comments to show this. You must be registered for our forum and can then login on this public site with the same username and password.

To have your photo next to your comment please signup your email address with Gravatar.

Your email is never published. Required fields are marked *

Please complete the name of this site, Liberal Democrat ...?


Recent Comments

    No recent comment found.