UK GDP contracted by 0.3% q-o-q in the final quarter of 2012. While the economy undoubtedly ended the year on a lacklustre note, once again these headline results have been exaggerated by one-off factors. This time it was the unwinding of the Olympic effect and a temporary disruption to North Sea oil production which weighed on GDP.
Excluding these, the underlying performance of the economy was probably closer to 0.2% growth. For 2012 overall, economic activity was flat, but grew by 0.2% if oil & gas output is excluded.
The details reveal that mining and quarrying output fell by 10.2% q-o-q and accounted for 0.1 percentage point of the overall decline. This was largely due to a big drop in oil production suffering from an extended and later than usual maintenance schedule.
The unwinding of the Olympics effect also had a major impact on the figures, with declines recorded in distribution, hotels & catering (-0.4% q-o-q) and sports & recreational services (-22%). The latter reduced GDP by 0.2 percentage points and was directly related to the boost to Olympic ticket sales in 2012Q3.
However, there were some encouraging details in this release. Business services rose by 0.4% following an increase of 0.9% in 2012q3. The beleaguered construction sector recorded a rise of 0.3%; however this follows three consecutive quarters of hefty declines and production remains 11% lower in y-o-y terms. The transport, storage & communications sector expanded by 0.7%, but the ONS suggests much of this was due to a rebound in communications which suffered a sharp decline in 2012q3 as people opted to watch the Olympics rather than DVDs and films.
Worryingly, the manufacturing sector declined by 1.5% as exporters struggled amid the sluggishness of the key eurozone export market.
Looking ahead, the see-saw of quarterly GDP releases looks set to continue into 2013 as the severe January weather raises the risk that the economy’s decline may have extended into yet another quarter. Despite this triple-dip threat, the underlying performance of the economy is expected to remain one of very sluggish growth. Weak household incomes, little appetite for fixed investment, declining government spending and poor exports underpin the subdued outlook for 2013.