GDP figures likely to show zero growth

Figures out this week are expected to show that Britain's economy came to a virtual standstill in the last three months of the year. GDP data on Tuesday will show the economy slowed from 0.7% in the third quarter to 0.2% or even zero in the run-up to Christmas, economists say.

Last week the Office for National Statistics said December's retail sales were flat on the previous month – the worst pre-Christmas performance since 1998. Many shops blamed the snow for the slump in sales but the ONS said higher prices had also deterred shoppers.

Chris Williamson, of the economics consultancy Markit, said underlying fears of unemployment and the effects of the government's public spending cuts were also stopping households from spending.

Other areas of the economy have also seen weak sales and a downturn in confidence. Construction, which grew strongly in the first half of 2010, has gone back into recession in recent months, while surveys of the services sector, which makes up 70% of the economy, have shown it weaken.

Manufacturing has held up, but only in those parts of the sector benefiting from the export boom. However, many manufacturers have reported a jump in input prices that will eat into their profits if they cannot pass them on.

Shops are warning of a difficult six months following the rise in VAT to 20%. Many retailers expect a dramatic slowdown as rising inflation and the tax rise eats into household incomes. Small and medium-sized businesses say the VAT rise will hit cash flow and increase their need for bank lending.

However, lending figures from the Bank of England and the Council of Mortgage Lenders only added to the gloom. Bank officials said lending to businesses shrank by £5bn in the three months to November. The CML reported a dive in mortgage lending as sales remained subdued.

CML data showed the total number of homes sold in the UK in 2010 rose slightly to 884,000 but remain half of the volumes traded in 2006 and 2007, when more than 1.6m were sold each year.

Source : Phillip Inman - Guardian.co.uk