That shrinking feeling: UK economy contraction worse than expected

The initial estimate had placed the figure at 0.5%. Heavy snow at the close of last year is blamed for the contraction.

The UK economy also shrunk by 0.5% in the final quarter of 2010.

However, the 0.1% disparity is no cause for alarm. "Its not that much of a shock, this is a very small revision," says ONS chief economist Joe Grice.

Speaking to BBC News, Grice continues: "The snow effect we think is still 0.5%. On the basis of that, the economy is still flattish at minus 0.1%. The overall picture is still a flattish underlying economy in the fourth quarter."

A closer look at the figures shows that UK households have been cutting back on spending over the past two months, but that this belt-tightening started even before the rise in VAT sales tax. As a result household spending has fallen 0.1% - the first fall in 18 months.

Again, no surprises here, but the figures may make Bank of England policymakers think twice about raising interest rates right away.

In other economic news. The trusty ONS has also reported that public sector borrowing has hit a surplus of £3.735bn, far higher than expected and the largest surplus since July 2008. This was, of course, down to the flood of tax receipts making their way into public coffers.

Total public borrowing for the year to date now stands at £113bn, £14.1bn lower than at the same point last year.

However, there's another blot on the economic horizon: inflation hit 4% in January. The British Chambers of Commerce predicts a further rise to 4.5% before we see inflation stabalise.

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