Prospects for the UK Economy

Abstract

The performance of the UK economy was surprisingly weak in the final three months of 2010. The Office for National Statistics (ONS) preliminary estimate of GDP suggests the economy contracted by 0.5 per cent in the quarter. Much of this can be attributed to the exceptionally bad weather in the weeks before the Christmas holidays. But even when this effect is excluded UK economic growth is estimated to have stalled. It is important to gauge the signal in this slowdown, because if it is continued it will affect Bank of England decision making and strengthen the case for restructuring and retiming the fiscal consolidation that is underway. The composition of growth is important in this re-evaluation of prospects. While one would expect the construction sector to be hampered by adverse weather, the contraction in services output was more surprising.