The third estimate of GDP growth for the fourth quarter of 2011 was revised down slightly from -0.2 per cent to -0.3 per cent. This downward revision was driven by the output measure, with additional weakness in the transport and communications sector, and the financial services sector, which was partly offset by some additional strength from the health services sector.
Compared to the fourth quarter of 2010, GDP grew by 0.5 per cent and during 2011 as a whole GDP grew by 0.7 per cent. So over the four quarters of 2011, GDP grew by an average of just under 0.2 per cent. This compares with an average quarterly growth during 2010 of 0.5 per cent for 2010 as a whole compared to 2009.
Whereas real GDP fell slightly in the final quarter of 2011, by 0.3 per cent compared with the previous quarter, employment and hours both rose. The total number of people in employment rose by 60,000 taking the employment rate for people aged 16 to 64 years from 70.2 per cent in the third quarter to 70.3 per cent in the fourth. Similarly total hours worked increased by 0.4 per cent between the latest two quarters.
During the recession, employment fell by less than might be expected given the scale of the fall in output. By the middle of 2009, output was more than 7 per cent below its pre-recession peak, while over the same period, employment fell by around 2 per cent, and total hours worked by less than 4 per cent.
A decline in full time and permanent employment, with a corresponding rise in part time and temporary employment, may suggest that firms have been ‘hoarding’ labour – using the greater flexibility offered by reducing hours worked rather than the number of employees themselves. It may be easier to adjust hours worked in response to changes in demand and output, rather than making employees redundant and then having to recruit new workers at a later date. There are also benefits to retaining existing staff in terms of an established skill base and accumulated experience.
During the subsequent recovery, the labour market has similarly recovered only modestly, with employment rising by less than in previous recoveries from recession. Notwithstanding the movements in the latest quarter, by the end of 2011, the drop in GDP from the pre-recession peak was still just over 4 per cent, while total weekly hours has fallen by 3.4 per cent over the same period and employment has fallen by just 1.3 per cent.
Another way in which the labour market has adjusted to the recession has been through slower earnings growth, which in December was 1.9 per cent for the whole economy. By contrast consumer prices rose by 4.2 per cent in the same period.
Earnings have been growing more slowly than price inflation for much of the past four years, and this has been a key influence on the subdued economic recovery seen so far. However the fall in real earnings has diminished slightly in the last few months as the rate of consumer price inflation has fallen back somewhat. Consumer price inflation fell further to 3.6 per cent in January and 3.4 per cent in February as the impact of the rise in the rate of VAT to 20 per cent in January 2011 has dropped out of the annual inflation figure.
Source: Office for National Statistics
GDP: chained volume measures, seasonally adjusted, Office for National Statistics (ABMI)
Employment level: aged 16 years and over, seasonally adjusted, Labour Force Survey, Office for National Statistics (MGRZ)
Total weekly hours: seasonally adjusted, Labour Force Survey, Office for National Statistics (YBUS)
Earnings growth: Total average weekly wage growth for the whole economy, 3 month on 3 month, seasonally adjusted, Monthly Wages and Salaries Survey, Office for National Statistics (KAC3)
GDP data is from the latest release, which is the third estimate of the fourth quarter of 2011, Quarterly National Accounts published on 28 March 2012.
The labour market data is from the latest Labour Market Statistical Bulletin published on 14 March 2012.
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