(Updates with pound in ninth paragraph.)
Jan. 25 (Bloomberg) -- The U.K. economy shrank more than forecast in the fourth quarter as the boost from the London Olympic Games unwound and mining output plunged, leaving the country on the brink of an unprecedented triple-dip recession.
Gross domestic product dropped 0.3 percent from the three months through September, the Office for National Statistics said in London. That compares with the median of 38 estimates in a Bloomberg News survey for a decline of 0.1 percent.
Growth is struggling to gain traction more than three years after the economy emerged from its deepest recession since World War II, with heavy snow across the country this month raising the possibility of a further contraction in the current quarter. Bank of England Governor Mervyn King has said policy makers will provide more stimulus if needed.
While the “dip in GDP in the fourth quarter is likely to have been partly due to an unwinding of the Olympics boost, there is significant concern that the weakness goes deeper than that,” Howard Archer, an economist at IHS Global Insight in London, said before the data was released. “It would not take much in the way of adverse developments to result in further contraction and a triple dip.”
Services, which make up about three quarters of the economy, were unchanged in the fourth quarter from the previous three months, with government spending on services falling 0.7 percent, the most since the second quarter of 2008.
The statistics office said there was also some evidence of “fall back” following the Olympic Games in the third quarter. Industrial production fell 1.8 percent, while manufacturing dropped 1.5 percent. Construction output rose 0.3 percent.
The economy’s performance in the fourth quarter was also affected by the maintenance shutdown of the Buzzard oilfield, the largest in the North Sea. The ONS estimated that mining and quarrying, which plunged by a record 10.2 percent in the fourth quarter, took off 0.18 percentage points from GDP.
From a year earlier, GDP was unchanged in the fourth quarter, the ONS said. It was also unchanged in 2012 as a whole, compared with 0.9 percent growth in 2011.
Concern about the outlook has pushed the pound to its lowest level against the dollar for almost five months. The currency erased gains in London today and was trading at $1.5760 as of 9:31 a.m. London time, down 0.2 percent on the day.
The U.K. as recovered only half of the economic output lost during the 2008-2009 recession as inflation outpaces incomes, government spending cuts bite and the euro-region crisis saps demand in the biggest market for British goods.
While the U.S., German and Canadian economies are back above their pre-recession levels, U.K. GDP was 3.3 percent below in the fourth quarter -- only Italy is further behind among Group of Seven nations. It means Britain remains mired in its longest peacetime slump of any since 1920, according to the National Institute of Economic and Social Research.
The lack of growth is making it harder for Chancellor of the Exchequer George Osborne to cut the budget deficit as corporate profits and the taxes they generate come under pressure.
Supermarkets such as J Sainsbury Plc are struggling to boost growth as cash-strapped Britons make fewer shopping trips and substitute branded products for cheaper own-label versions. Marks & Spencer Group Plc, the biggest U.K. clothing retailer, said this month that pressure on consumers’ disposable incomes will probably continue in 2013 and it is “cautious” about the outlook.
Today’s data today is an initial estimate and the figures are subject to revision when the ONS gets more information.
Britain is the first G-7-Seven nation to report GDP data for the fourth quarter. U.S. growth probably slowed to a 1.5 percent annual rate from 3.1 percent in the third quarter, according to a survey of economists published on Jan. 10. The Commerce Department will publish the data on Jan. 30. The European Union’s statistics office will publish figures for the 17-nation euro area on Feb. 14.
Snow and freezing temperatures that gripped the U.K. this month disrupted travel and construction work and kept consumers out of the shops, threatening to add to the one-time factors that have led to what King says has been a “zig-zag pattern” of output. Excluding one-time factors, London-based Niesr says underlying growth is “flat.”
“Against headwinds, the underlying performance of the economy is doing okay,” said Alan Clarke, an economist at Scotiabank in London. Still, “it’s a pretty damning state of affairs if an outage at an oil rig or a bit of snow makes the difference between a negative and positive GDP result.”
Economists commonly define a recession as two consecutive quarters of declining economic output and a contraction in the fourth and first quarters would be the third slump since GDP reached its peak at the start of 2008. Britain has not had a triple-dip recession in peacetime since at least 1920, according to Simon Kirby, an economist at Niesr.
The Bank of England’s Monetary Policy Committee will have new economic and inflation forecasts at its meeting next month. It paused its bond-buying program in November at 375 billion pounds ($591 billion) and voted to maintain that target at this month’s meeting.
--Editor: Andrew Atkinson