Figures point to country avoiding recession

The Office for National Statistics confirmed its earlier estimate that the economy shrank by 0.2 per cent in the final quarter of 2011, largely due to a slump in investment at a time when the turmoil in the eurozone was at its most disruptive.

But the strong consumption and export performance chime with recent business surveys indicating a pick-up in activity at the start of 2012.

High unemployment and the overall meagre recovery from a 2008-2009 slump are keeping pressure on Chancellor George Osborne to find ways to boost growth without wavering on his plans to erase the country’s huge budget deficit.

With substantial cuts to public spending still to come and Britain’s main export market, the eurozone, headed into recession, the Bank of England may still need to inject further cash into the economy in the months ahead.

“We now expect a positive GDP outturn for Q1 given the upturn in many of the indicators which we’ve seen recently,” said Investec economist Philip Shaw.

“The uncertainties remain, and when economies recover from financial crises, they don’t recover in a straight line, and certainly the Bank of England’s central GDP forecast for 2013 does look punchy.”

The ONS adjusted annual growth in the fourth quarter to 0.7 per cent – a slight downward revision which briefly pushed the pound lower against the dollar.

Consumer spending rose by 0.5 per cent on the quarter – the first quarterly increase in 12 to 18 months – while exports jumped 2.3 per cent, the ONS said.

But gross fixed capital formation dropped by 2.8 per cent, with business investment falling 5.6 per cent on the quarter, and slower inventory building also dragging on growth.

“The relative strength of growth (in household spending) in the fourth quarter may reflect some demand which had not been exercised in the previous five quarters,” the ONS said.

The ONS said the dominant services sector stagnated at the end of last year as manufacturers and construction firms cut back production. Separate data showed that services output grew by 0.2 per cent on the month in December.