British economy shrinks 0.5 percent

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Britain's economy shrank slightly less than previously thought late last year, official data showed Tuesday, but analysts warned that the government's austerity drive would hinder growth in 2011.

Gross domestic product (GDP) contracted 0.5 percent between October and December compared with the third quarter, as cold weather hampered the construction industry, the Office for National Statistics (ONS) said.

Its third and final estimate was a slight improvement on the second estimate published last month, which said GDP had contracted by 0.6 percent. An initial figure in January matched the final reading of minus 0.5 percent.

Economists surveyed by Dow Jones Newswires had forecast no revision to the final figure.

"GDP growth contracted by 0.5 percent in the latest quarter, revised from a fall of 0.6 percent previously published," the ONS said in a statement.

It added that between October and December, GDP was an unrevised 1.5 percent higher compared with the fourth quarter of 2009.

"Slightly lesser GDP contraction than previously reported in the fourth quarter of 2010 does not fundamentally change the UK economic story," said Howard Archer, chief European economist at research group IHS Global Insight.

"The data still show that the economy suffered a marked loss of momentum at the end of 2010, which could not be attributed solely to December's bad weather.

"As such, the data fuel concerns over the underlying strength of the economy -- particularly as the fiscal squeeze had only nibbled rather than really started to bite in the fourth quarter of 2010."

Britain's Conservative-Liberal Democrat government is slashing state spending in a bid to virtually eliminate a record public deficit it inherited from the previous Labour administration after winning power last year.

Critics say the coalition's austerity drive is stunting Britain's recovery from recession, while the government last week lowered its official forecast for 2011 GDP growth to 1.7 percent from an earlier estimate of 2.1 percent.

The Treasury said Tuesday's figures proved the government's plans were working and claimed that measures outlined in last week's budget would help the economy grow.

"This upward revision to growth continues to show the manufacturing sector performing well, which, supported by the actions announced in the budget and the plan for growth," said a spokesman.

Economists, however, cast doubt on the government's optimism. "The underlying economic picture is weak," noted Daiwa Capital Markets analyst Hetal Mehta, who on Tuesday forecast 2011 first-quarter growth of just 0.4 percent.

And Spreadex trader Phil Gillett said that given weak consumer confidence in Britain, "we could be see further contraction for Q1 2011 and this would mean the UK is officially back in recession."

© 2011 AFP

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