UK GDP shrank by 0.3% in fourth quarter

So, for a round-up of the news and reaction.

UK GDP dropped by 0.3% in the final quarter of 2012, prompting fears Britain could be on course for its third recession in four years. (full-story here)

Chancellor George Osborne has blamed debts built up under Labour, and the eurozone crisis for the UK's ailing economy. (see 10.05am)

Britain risks losing its prized triple-A rating, warn economists. (see 10.08am)

Sterling plunged on the news (see 10.12am) but stock markets were relatively unmoved. (see 10.56am)

Osborne's strategy has failed - Larry Elliott. (full analysis here)

We'll close the GDP live blog now, but will be reporting on all the developments from Davos, the eurozone and beyond, over on the Davos live blog. Thanks for all your comments.

Labour says (somewhat predictably) that the GDP figures prove that Osborne's plan is not working.

Shadow chancellor Ed Balls said:

Today is the moment when David Cameron and George Osborne’s complacency is completely exposed. These deeply disappointing figures expose just how dangerously complacent the prime minister was when he said last autumn that the ‘good news will keep coming’.

Today's news confirms what business leaders, retailers and families have known for many months - that depressed confidence and a chronic shortage of demand mean our economy continues to flatline. This government’s failing plan has now seen our economy stagnate for over two years and borrowing is now rising as a result.

He urges the chancellor to listen to growing calls for him to ease off on austerity.

It is grossly irresponsible and out of touch of George Osborne to once again try to shrug off bad news and refuse to heed the advice now coming to him from right, left and centre. The chancellor should listen and act now to give direct help to struggling families and businesses. Instead, the only people he is helping are millionaires who will get a tax cut in April, on the same day that millions of working families have their tax credits cut. This kind of Tory trickle-down economics is just not going to work.

As the IMF has warned again this week, we need a change of course in the budget with policies to kickstart our flatlining economy. A plan B now should include a compulsory jobs guarantee for the long-term unemployed and a temporary VAT cut to boost family incomes and our struggling high streets. We should also bring forward infrastructure investment, including building thousands of affordable homes, and establish a British Investment Bank to boost lending to small businesses.

The FTSE remained relatively unmoved by the grim news on GDP, writes my colleague Nick Fletcher.

The UK stock market has shrugged off the below-par GDP figures, with the FTSE 100 up 9.10 points at 6274.01, continuing the new year rally which has pushed the index to a near five-year high.

Andrew Edwards, chief executive of ETX Capital, said: "The UK index is trading near its highs for the year, barely affected by the poor GDP numbers and firmly above the 6250 level. So despite the low growth environment in the UK, investors clearly still see value in the market and will continue to do so during the year.

European markets are also moving higher, with Germany's Dax up 83 points or more than 1% after a better than expected business confidence survey which pointed to the country's continuing economic recovery. As a consequence, France's Cac has climbed 0.68% and Spain's Ibex is up 0.46%.

But the Institute of Directors sounds a more upbeat note. Graeme Leach, chief economist at the institute, said:

You can’t see the road ahead through the rear view mirror. The GDP fall was largely attributable to the unwinding of the Olympic effect and so the underlying story is that output is flat. The critical factor is not what the GDP figures did in the fourth quarter but what the broad money supply figures will do in the first quarter. If the recent slight pick-up in money supply growth can be sustained, the UK economic outlook in 2013 will be better than people expect. So hold back on the doom and gloom.

But it is not just firebrand union bosses saying that. Goldman Sachs's chief economist, Jim O'Neill, told ITV News the coalition government should think again about prioritising its credit rating rather than growth.

O'Neill said it was not easy to tell why GDP was bad ... "other than the very bleak conclusion that policy has been on the wrong path, fiscal policy has tightened too much".

Austerity is not working, say the unions, following news that the economy shrank by 0.3% in the final quarter of 2012. The TUC general secretary, Frances O'Grady, said:

Today's figures confirm our worst fears that the chancellor's austerity plan has pushed the UK economy to the brink of an unprecedented triple-dip recession.

We are now mid-way through the coalition's term of office
and its economic strategy has been a complete disaster. The economy has grown by just 1%, real wages have fallen, and the manufacturing and construction sectors have shrunk. We remain as dependent on the City as we did before the financial crash.

The chancellor now has all the evidence he needs to change
course and focus instead on investment and growth. If he refuses to listen he could do even more permanent damage to the economy.

The latest GDP figures show that in the 10 quarters since the
election, manufacturing has contracted by 0.4% and the
construction sector has shrunk by 9%.

George Osborne's strategy has failed, writes our economics editor Larry Elliott, who is over in Davos.

The strategy has failed. The public knows it. The International Monetary Fund knows it. The credit rating agencies know it. Even George Osborne knows it, although he can’t bring himself to admit as much.

Here is a brief resume of how things stand for the economy after two and a half years with the coalition government at the helm. National output has just contracted for the fourth quarter in the last five. The only quarter of 2012 in which the economy expanded was the one that contained the London Olympics, and unfortunately for the chancellor these sort of jamborees happen once every half century rather than once every three months.

During 2012 as a whole the economy registered no growth at all. Nothing. Zilch. A big fat zero. The level of gross domestic product is 3% below where it was when the recession started, a weaker performance than during the 1930s. RBS says the four-year performance of the economy between 2008 and 2012 is the weakest since the 1930s apart from post-war mobilisations.

We'll have more comment from Larry up online shortly.

Britain could be on course for its third recession in four years after the economy shrank by 0.3% in the last three months of 2012, writes my colleague Phillip Inman.

A fall in manufacturing output dragged down the economy, countering a small rise in construction between October and December last year, according to the Office for National Statistics.

The figures were worse than expected and could put pressure on the government to consider a "Plan B" that would stimulate demand.

The prospect of a triple-dip recession, which will become official should the economy contract again in the first quarter of 2013, is expected to further dent the confidence of consumers and companies, hitting high street spending and business investment.

The contraction in GDP followed a near 1% rise in GDP in the third quarter when the economy had been boosted by the Olympics.

On Thursday chancellor George Osborne was forced to rebut comments by the chief economist of the International Monetary Fund that the UK should ease back on austerity to give the ailing economy a boost.

The economy remains 3.5% below its peak in 2007 and is not expected to regain its previous level for at least another two years, making it the longest recovery in 100 years.

Sterling is being slaughtered on the GDP news and the triple-A rating looks under threat, writes a foreign exchange specialist. Glenn Uniacke, head of options at the forex specialist Moneycorp said:

Sterling is being slaughtered - and has already fallen below last year's low against the euro. The tanking pound is curiously
at odds with the soaring stock market, but that will be of little
comfort to struggling importers.

With Britain's economy back in reverse and the government
set to miss its deficit targets, our much-prized AAA credit rating is looking shakier by the day.

The markets now talk of when, not if, the UK's credit rating is downgraded - with estimates running from any time between now and the moment the country officially returns to recession.

But the pound has already fallen so far, the one crumb of comfort is that if Britain is downgraded, the markets will have priced it in so much that any further fall will be limited.

So sterling shouldn't fall off a cliff post-downgrade. But
that modest achievement is only because it's shuffling down the cliff face already.

The news has also prompted economists to question whether the UK can hold on to its prized triple-A rating. Chris Williamson at Markit writes:

At the moment it remains too early to tell if the economy will triple-dip, but today's numbers have greatly increased the risk of a new recession and a downgrading of the UK's AAA credit rating. As such, the data pile ever more pressure on the chancellor to seek ways to revive the economy in the March budget.

There's a lot of comment on the weakness of the recovery, as demonstrated by today's GDP figures. Fraser Nelson at the Spectator writes:

Now we know why David Cameron delivered his Europe speech on Wednesday. It’s time for bad headlines again: the GDP figures just announced show that the British economy is contracting for a third time — by 0.3 percent in the final quarter of last year.

Now, you’ll hear a lot of people tell you today that quarterly data does not matter. The ONS say this is a fallback from the Olympics, which sucked economic growth forward. And they’re right: the ONS usually revises quarterly data, often dramatically. What matters more is the long-term trend, and this is pretty appalling. It now seems inarguable that Britain is going through the worst recovery in history. Slower and longer even than the 1930s.

Chancellor George Osborne is speaking in Davos about the figures, blaming the buildup of debt under Labour and the crisis in the eurozone for Britain's shaky economic figures. He said:

We have a reminder today that Britain faces a very difficult economic situation.

A reminder that last year was particularly difficult, that we face problems at home because of the debts built up over many years and problems abroad with the eurozone, where we export most of our products, in recession.

Now, we can either run away from those problems or we can confront them and I am determined to confront them so that we can go on creating jobs for the people of this country.

The FTSE has stayed pretty robust, considering the dire GDP figures. It is still up by 0.1%, or 6 points, at 6271.

There are some factors that could point towards a better 2013, says the manufacturers' organisation. Lee Hopley, economist at the EEF, said:

The big euro-exit risk has diminished, the employment picture is better than expected and manufacturers are continuing to look to new markets for growth. That said, government must hit the accelerator on getting capital projects moving and be clearer about its economic priorities to give businesses more confidence to invest for the future.

But she took a dim view of the GDP figures:

There are no positive takeaways from today’s first estimate of GDP in the final months of last year. Even assuming some unwinding of activity from the Olympics boost in the previous quarter, this still leaves no real signs of underlying growth in the economy. The news from industry was particularly weak, with November’s sharp drop on output contributing to a rather grim fourth quarter and leaving the overall picture for manufacturing in 2012 the weakest since 2009. 

The UK economy will not return to the levels seen in the first quarter of 2008 until the first half of 2015, says Howard Archer of IHS Global Insight in a very gloomy reaction to the GDP figures. He writes:

With the economy suffering a renewed GDP dip in the fourth quarter of 2012, the definition of the current state of the UK economy as DIRE needs to be amended from Disappointing Inflation Rotten Expansion to Disappointing Inflation Reduced Economy

While we believe the economy is essentially flat at the moment, it is worrying to note that GDP in the fourth quarter of 2012 was 3.3% below the peak level seen in the first quarter of 2008. We suspect that GDP will not return to the level seen in the first quarter of 2008 until the first half of 2015 - a gap of seven years.

And finally from Simon Neville:

The final drops of coffee are drunk, while ONS spokesmen do the rounds of radio and TV interviews. Then the assembled journalists (I count six) skulk off to the next job of the day

Taking a closer look at the ONS announcement. Here are some of the key points:

Output of the production industries was estimated to have decreased by 1.8% in Q4 2012 compared with Q3 2012, following an increase of 0.7% between Q2 2012 and Q3 2012.

Construction sector output was estimated to have increased by 0.3% in Q4 2012 compared with Q3 2012, following a decrease of 2.5% between Q2 2012 and Q3 2012.

Output of the service industries was estimated to have been flat in Q4 2012 compared with Q3 2012, following an increase of 1.2% between Q2 2012 and Q3 2012.

GDP was estimated to have been flat in Q4 2012, when compared with Q4 2011.

GDP is estimated to have been flat between 2011 and 2012. Users are, however, reminded that this figure is subject to revision in the second estimate of GDP when all quarters of 2012 are open for revision.

More from my colleague Simon Neville over at the GDP press conference:

Joe Grice, chief economist for the ONS who made this morning's announcement, tells me that the margin of error usually sees today's figures revised up or down by 0.2% when more data comes in, meaning the best case scenario is GDP for Q4 was down 0.1%, so we're still on our way to another recession.

He added: "If there are exceptional circumstances this could change the figures by more than 0.2%. We saw that during the diamond jubilee."

However, he doesn't seem to think anything happened in Q4 that could alter the figures into positive territory.

The news has hit the pound hard, with sterling falling to a five-month low of $1.575, from $1.581 before the GDP figures were released.

The euro, meanwhile, rose to a fresh 11-month high against sterling of 85.25p.

The Treasury has just issued a statement saying:

It confirms what we already knew - that Britain, like many European countries, still faces a very difficult economic situation. While the economy is healing it is a difficult road.

… from @nickvanmead

Economists at Capital Economics do not expect an immediate reaction from policymakers.

The MPC was braced for a fall, while the chancellor yesterday suggested that a weak GDP figure would not cause him to change course. However, the fact that the economy is contracting more than three years after the recession first ended suggests that the current policy stance isn’t working and more action needs to be taken.

Taking a closer look at the announcement, the Office for National Statistics says the data show Britain, like other European countries, still faces a very difficult economic situation.

It blamed the decline on lower output from the North Sea and manufacturers.

The economy is now 3.3% smaller than its peak in the first quarter of 2008, recovering only about half the output lost during the financial crisis - a worse performance than other major economies.

Some reaction from RBS, which puts the decline in GDP since the crisis in historical perspective.

Our economics editor Larry Elliott writes:

Britain is now halfway to a triple-dip recession after this disappointingly weak performance.

The economy clearly lost momentum in the final three months of 2012 after the one-off boost from the Olympics in the summer.

This adds to the pressure on George Osborne to ease up on his austerity programme and provide a growth boost in the budget. The economy flatlined in 2012 as a whole.

Seems those upbeat rumours were off the mark and NIESR was right again. 

And the results are in...

UK GDP declined 0.3% in the fourth quarter of 2012. 

That's a dreadful result for George Osborne, he was clearly putting a brave face on it. There's talk that Osborne will be digesting the result from Davos. We'll have that and all the reaction to the news as it comes in.

And one last rumour before we get the actual number. Financial Spread Trader again writes:

Just got an SMS text mesg from one of the traders (very reliable one) who informed me today that the UK GDP was leaked and will beat forecast tomorrow, I broke this story earlier today on twitter.

Text mesg states the UK GDP tomorrow at 09:30GMT will be +0.2% or better, forecast is for -0.1%.

Apparently the leaked source wants £300,000 for supplying the actual number and has a number of offers.

If all is true, then a Pre- GDP buy on GBP/USD would fit well with current technicals at 1.5750-70 with a view of 1.5890
tomorrow.

My colleague Simon Neville is down in Westminster to report on the announcement. He writes:

A poor showing at the ONS GDP results live from Westminster.
The London weather might be as chilly as Davos but that is where the similarities end, for while the world's movers and shakers quaff champagne, we make do with coffee and a surprisingly large array of teas.
One PR bod asks me to sit at the front and look busy for the cameras that are here.
He sighs: "It used to be such a busy event."

What's more George Osborne seemed very upbeat at the World Economic Forum in Davos yesterday. Questioned about Britain's economic situation, he said:

We are walking a difficult road but we are heading in the right direction.

There was his lively dinner with David Cameron and Boris Johnson last night. As Greenpeace's head of media notes, it could be a good sign for the economy.

But enough of the doom and gloom, there were rumours swirling yesterday that the Office for National Statistics might have a surprise in store and that GDP figures could show a positive reading.

One market player wrote on the Financial Spread Trader blog:

I have been told by a few traders on our trade desk that the UK GDP scheduled for release tomorrow has been leaked, rumors doing the rounds across many dealing and trade desks is that the figure is better than forecasted, GBP£ positive.

Of course this is currently a market rumour, but in the past when such traders have given me this kind of information pre-news release, they have been accurate a very large percentage of the time.

The figures will also show how weak the 'recovery' from this financial crisis continues to be.

Here's another pretty chart from NIESR comparing the UK's economic recovery following the last six crises. The black line shows our current position.

But how likely is it that we head towards triple-dip with today's GDP figures?

The consensus estimate among City economists is for a 0.1% decline in GDP in the fourth quarter. But some analysts are much more pessimistic.

The National Institute of Economic and Social Research expects a 0.3% decline.

It said output was artificially high in the third quarter, when the economy grew 0.9%. That surge, which ended nine months of contraction, stemmed largely from ticket sales for the Olympic Games held in London over the summer. Although the tickets were sold throughout 2011 and the first half of 2012, they were allocated to the national accounts only in the third quarter, inflating the level of output.

Removing these distortions suggests an underlying economic performance that is best described as flat.

NIESR's record of guessing these things is pretty good, as it boasts on its website.

To get a bit of perspective on what it means to fall into a triple dip, the Press Association has provided some helpful stats.

According to the Office for National Statistics, there has not been a triple-dip recession since its records began in 1955, with Britain last suffering such economic gloom in the Great Depression.

More from PA:

But the UK did experience some shaky economic times in the 1970s, when the economy came very close to a triple-dip recession, slipping in and out of negative territory.

Largely caused by the 1973 oil crisis, the UK was in recession for two years in the mid 1970s and it took 14 quarters for GDP to recover to levels seen before the start of the recession - during which time it slipped into a double-dip recession and nearly a triple.

Britons also faced eye-watering stagflation in the 70s, when negative GDP combined with high inflation. Inflation peaked at more than 20% during that recession, putting today's above-target UK inflation of 2.7% in perspective.

The FTSE opened down but has inched up recently, currently trading up 3 points or 0.06% at 6269 points. The pound hit a 10-month low against a basket of currencies.

Michael Hewson of CMC Markets writes:

The health of the UK economy is also set to come under the microscope this morning, with the first publication of Q4 GDP, and expectations have gradually been revised lower in light of the recent disappointing retail sales and services PMI data seen over the last few months.
 
In the last few days we’ve seen sterling long positions been given a good shake out, as the pound has dropped sharply across the board in anticipation of a poor number. Expectations are for a negative quarter of -0.1% after Q3’s Olympics enhanced 0.9%, however this is the optimistic scenario with some estimates of -0.5% being bandied about on a worst case scenario.
This in turn will ensure that the whole of 2012 will show a net contraction in the UK economy and increase speculation about further action from the Bank of England at next month’s MPC meeting.
 
With Chancellor George Osborne rejecting the option of a Plan B from the IMF, expect the pound to come under further pressure in anticipation of an imminent ratings downgrade as well as speculation about the discussion of additional measures, whether or not they ultimately get delivered.

Good morning and welcome to our GDP live blog. At 9.30 today we will find out whether the economy grew or contracted in the final quarter of 2012. 

Until recently the smart money was on a contraction (the sweepstake in our office runs from 0 down to -0.5%) but there was talk yesterday that it could be positive. Post your guesses in the comments below. 

If the economy did shrink that puts Britain on the road to an unprecedented triple-dip recession.

It won't be called a recession today, as that requires two quarters of contraction. But, with snow disrupting the economy in January, analysts say it's likely GDP will drop this quarter.