The Office of National Statistics (ONS), which releases the figures, blames the poor result on the bad December weather, saying the fall, which compared with an increase of 0.7 per cent in the previous quarter, was mostly caused by decreased activity in the services and construction sectors.
Construction declined by 3.3 per cent between October and December, and the services sector shrank by 0.5 per cent, with the ONS noting that the largest contribution to the decline for the sector was from the so-called UK powerhouse of business services and finance.
The poorer than expected results come on the back of last week’s worst ever retail sales results which showed a month-on-month record fall for December. Many analysts say the combined drop in GDP and retail sales, along with rising inflation, could lead to higher unemployment and a ‘double dip’ recession.
John Walker, national chairman of the Federation of Small Businesses, says the government has been too focused on cutting spending, and he calls for more support for businesses, particularly small growing businesses.
He comments, ‘As a double-dip recession comes ever closer, we need to see the government look to ways to nurture entrepreneurship and allow small firms to grow, such as extending the National Insurance holiday to existing businesses that take on new staff and keeping to its manifesto promise and introducing a fuel duty stabiliser.’
Dr John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development agrees, describing the government’s approach to the economic recovery since the spending review last year as a “satnav” approach.
He comments, ‘The latest GDP figure is astonishingly poor. The government would be well advised to use today’s figure as an opportunity to reconsider what appears to be a “satnav” approach to fiscal policy.
‘Pursuing a fixed course of cuts in public spending and tax increases regardless of obstacles and bumps in the road is not sustainable – particularly in the face of fairly large bumps like this.’
MSM Software managing director Thomas Coles remarks that the GDP drop is ‘no great surprise’ to many small and medium enterprises, which experienced a ‘turbulent’ second half last year and are ‘hugely pessimistic’ about this year.
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He continues, ‘The biggest concern for small businesses in relation to this announcement is that confidence may drop, which will ultimately result in another downward spiral. This is indicative of the predicted ‘double dip’ where more businesses will go bust, because of cash flow issues. And to make it worse, the banks still aren’t helping.’
