The economy shrank by 0.6% in the final quarter of last year, a sharper fall than initially thought.
The Office for National Statistics’ surprise downward revision from a 0.5% drop reported last month, was blamed on industry and service sector firms whose performance was worse than originally estimated.
Consumer spending also slipped and the economy was kept afloat by higher government spending, which will see sharp cuts in coming months, the ONS said.
But the ONS maintained that the harsh winter weather before Christmas - with the coldest December on record - contributed 0.5 percentage points to the decline. Without the poor weather GDP would have shown a slight 0.1% fall, the ONS said.
The revised figures came as the Institute for Public Policy Research (ippr), a think tank, published a new collection of essays on the economy with the Left Foot Forward blog and the Friedrich Ebert Foundation.
The collection of essays, called ‘Going for growth’, makes the case for a strategy to increase the UK’s chronically low investment levels by taking advantage of the relatively lower cost of capital in the public and private sector.
It also calls for a renewed focus on skills to ensure that the best ideas are developed in the domestic economy and that the UK’s labour market is able to compete.
The collection also calls for support for innovation that goes “beyond a narrow focus on tax incentives” and the devolution of policy levers “so that incentives for economic activity exist at the appropriate level for businesses”.
Tony Dolphin, ippr eenior economist, said: “The big issues facing the UK are an economy not operating at full capacity, with a lack of jobs and falling living standards. There is now just one month remaining for George Osborne to focus his Budget on stimulating growth.
“So far, the focus has been on taking short cuts to growth through spending cuts, cuts in corporation tax and cuts in regulation. But the lack of growth in the economy suggests this plan is not working.
“What’s needed is a ‘plan B’ that takes the high road to growth, with an active, strategic role for government in promoting investment, innovation and job creation. The economic recovery will not be led by the financial sector alone and there needs to be a much greater focus on regional development to support enterprise which creates jobs outside the capital.”
Mr Dolphin said ippr would submit it’s ‘Plan B’ to the Treasury before the Budget. On Monday (28th February), the think tank publishes a collection of essays with the Left Foot Forward blog and the Friedrich Ebert Foundation from leading economic thinkers and commentators.
‘Going for growth’, edited by ippr associate director Will Straw, is available to download here from Monday 28 February.
Read an exclusive extract of a chapter by Anna Turley, New Local Government Network deputy director.