The GDP contraction reflects mainly three factors: maintenance at the UK’s largest North Sea oil field, a ‘fall-back’ effect from the Olympic and Paralympic Games and underlying weak domestic demand.
Total production remained the main contributor (-0.3 percentage points) to the quarterly decline in GDP. In the second estimate, the sector was revised to a contraction of 1.9 percent. Construction was revised up in the latest estimate, growing by 0.9 percent and making a 0.1 percentage point contribution to GDP in the fourth quarter of 2012. However, this was offset by the services sector being revised down and contracting by 0.1 percent.
The decline in services sector output, while small, is only the fifth period of quarterly contraction in the last four years. After a total loss of 4.1 percent in output between the second quarter of 2008 and the first quarter of 2009, the services sector regained its pre-recession peak in the third quarter of 2012, while manufacturing and construction are still at least 10 percent lower. As the services sector accounts for over two-thirds of the UK economy, it has acted as a counterbalance to weaker growth in the construction and production sectors.