Economy heading for triple-dip recession, NIESR warns

Pressure mounted on the chancellor to moderate his austerity programme after analysis by a leading thinktank showed the UK economy heading for a triple-dip recession and high profile employers Honda and Jessops cut hundreds of jobs

The National Institute for Economic and Social Research (NIESR) said in its monthly health check that the economy shrank by 0.3% in the three months to December. Against a backdrop of weak consumer spending and a drop in manufacturing output, the estimates from NIESR may add fuel to campaigns for George Osborne to adopt a more radical approach to generating growth.

Plans by Honda to shed 800 jobs at its Swindon plant added to the dismay among unions and business lobby groups. Honda blamed a lack of demand for cars in recession-hit markets across continental Europe. Car sales were up 5% in Britain during 2012. The Unite union called the decision a "hammer blow" for those affected and the Swindon economy, and pointed out that 325 temporary workers had also left recently.

Administrators for the camera shop chain Jessops said a discussion with suppliers had revealed the business was no longer viable and all 189 shops would close, making 1370 staff redundant.

NIESR said the fall in the final quarter of the year was preceded by an artificially high boost to growth in the third quarter from Olympic ticket sales. Taking the six months as a single period, the economy was flat, just as it was in the first six months of the year. In 2011, the economy grew by 0.9%, said NIESR.

The first official estimate for fourth quarter GDP by the Office for National Statistics will be released on 25 January. Britain emerged from recession in the third quarter of last year but a series of gloomy releases – including weak trade data and downbeat purchasing managers' surveys – have fuelled fears of a contraction in the final quarter. If output continues to fall in the first quarter of this year, the UK will fall into its third recession in four years.

NIESR published its estimates after the ONS said manufacturing output dropped 0.3% in November, after a fall of 1.3% in October.

The wider reading of industrial output – also including output from the energy and mining sectors – grew by 0.3% following a sharp decline in October, which was revised down further on Friday to -0.9%. November's figures were boosted by an 11.3% jump in oil and gas output – the biggest increase since 1968 – after maintenance of the Buzzard North Sea oil field was completed.

But manufacturing and industrial production missed expectations, with analysts hoping for rises of 0.5% and 0.8% respectively.

Demand for goods in Britain has been hammered by economic uncertainty, below-inflation wage growth and punishing austerity, while exports have been hit by the eurozone crisis. Separate figures out from the ONS on Friday only added to concerns, as construction output dropped 3.4% in November.

Chris Leslie, shadow Treasury minister, responding to NIESR's forecast, said: "Unless we see strong growth in this quarter it will be clear that the last set of figures were little more than a one-off Olympics bounce.

"Under David Cameron and George Osborne's economic policies we've seen squeezed living standards, rising long-term unemployment, a flatlining economy, and borrowing rising by 10% so far this year as a result. So we need strong growth simply to catch up all the ground we have lost over the last two years."

Honda's job cuts, the first at its British subsidiary, came only months after hiring hundreds of new employees. But expectations of a resurgent European market proved illusory. "It's entirely the car market," said Honda Europe's executive vice-president, Ken Keir, who said demand in the European car market shrank by 1m last year. "We're not anticipating in mainland Europe any particular growth in the next three or four years," Keir told the BBC.

Unite national officer Tony Murphy said: "It's a tragedy for our members and their families. There's no doubt these cuts will have a significant knock-on impact on the supply chain, and on local shops and services."

A Department for Business, Innovation and Skills spokesman said the government would work with local partners to minimise the impact of the job losses. "Times are tough in the European market but the automotive industry remains a major success story for the UK. Over the last two years global manufacturers including Nissan, JLR and BMW have invested £6bn in the UK, safeguarding and creating new jobs."

The company will begin a consultation period with staff, and says it hopes to avoid compulsory layoffs at the plant, which manufacturers Civic, Jazz and CR-V models.