Days after a positive outlook by the British Chamber of Commerce, a new report now indicates that the UK may be sliding into a triple-dip recession against a backdrop of a drop in manufacturing output.
The country's leading think tank, the National Institute for Economic and Social Research (NIESR), said in its monthly analysis yesterday that the British economy shrank by 0.3 per cent in the three months to December.
If output continues to fall in the first quarter of this year, the UK will fall into its third recession in four years.
The news comes as major employers cut hundreds of jobs, including Honda announcing a slash of 800 jobs at its Swindon plant and high street camera retailer Jessops going into administration with 1,370 staff redundancies.
NIESR said the fall in the final quarter of the year was preceded by an artificially high boost to growth in the third
quarter from Olympic ticket sales.
Taking the six months as a single period, the economy was flat, just as it was in the first six months of the year.
In 2011, the economy grew by 0.9 per cent, it said.
Britain had emerged from recession in the third quarter of last year but a series of forecasts have fuelled fears of a contraction in the final quarter.
Demand for goods in the UK has shrunk due to economic uncertainty, below-inflation wage increases and a string of austerity measures, while exports have been hit by the eurozone crisis.
The British Chamber of Commerce's quarterly economic survey of 7,662 businesses released earlier this week had pointed to a stronger output from the manufacturing and service sectors in the final quarter of 2012 and overall marked improvement in business confidence towards the end of last year.
It expected an improvement in employment rates and even predicted some growth.
However, following the latest data, pressure will mo nt on the Chancellor, George Osborne, to moderate his austerity programme and adopt a more radical approach to generating growth.