Britain's economy contracted more than expected in the final three months of 2011, as factory and utilities output slumped, official data showed on Wednesday, raising concerns that Britain may be entering recession.
The figures are likely to reinforce expectations the Bank of England will inject more stimulus into the economy next month after Bank Governor Mervyn King warned of an arduous recovery ahead.
SIMON HAYES, BARCLAYS CAPITAL
If we do have a recession, it looks like it will be technical and shallow and nothing remotely of the order and magnitude we saw in 2008 and 2009.
This looks like a shallow and temporary contraction which will last one quarter. It could potentially last two but some of the recent data suggests activity stabilised in the first quarter of this year so I think there's a fairly good chance we can avoid even a technical recession.
The weakness in Q4 seems to be coming from some of the more erratic components and, if you look at the monthly business surveys, they bottomed out in October and have been improving in the past two or three months.
At the moment, as things stand, it looks like the first quarter of this year might be a lot stronger than Q4. That still leaves you in the realms perhaps of a technical recession but it's still not a done deal by any means. It seems more of a stretch to think you're going to see a large and protracted downturn in the course of this year. The short-term indicators just don't support that.
HOWARD ARCHER, IHS GLOBAL INSIGHT
The economy stuck one foot back through the recession door in the fourth quarter of 2011 as GDP contracted 0.2 percent quarter-on-quarter. We suspect that the second foot will follow in the first quarter of this year.
Hopefully, the recession will be modest and short-lived, although much will depend on events in the euro zone. We expect the economy to stabilise towards the middle of the year and then achieve modest growth in the second half.
News that the economy contracted modestly in the fourth quarter of 2011 makes further quantitative easing by the Bank of England look even more of a racing certainty in February.
PETER DIXON, COMMERZBANK
The numbers are marginally worse than expected, however I am not too concerned as we were always going to get a weak Q4. I'm treating this as a one-off.
Q1 won't be terribly strong but this doesn't mean the UK is back in a recession, although this does add additional fuel to the fire that the BoE will implement QE next month. This is the most likely time at this stage.
ADAM CHESTER, LLOYDS CORPORATE MARKETS
Marginally weaker than expected. We were looking for down 0.2 percent, the market was looking for down 0.1 percent, so it confirms that we did see a contraction in activity in the fourth quarter.
We think the UK economy will continue to contract until the middle of this year so we're looking at three consecutive quarters of negative GDP growth. So it's going to be a fairly challenging environment for the UK economy over the next six months and likely argues for further stimulus, and we expect further quantitative easing next month as well.