UK GDP Growth Shrinks in Q4 2012

The UK economy has shrunk by 0.3% in line with many economists’ predictions. The fall is mainly due to a slowdown in North Sea oil extraction, excluding oil and gas extraction the economy shrank 0.1%. This comes after a previous 0.9% growth in GDP during Q3.

Nick Clegg has blamed a lack of capital investment (investment in infrastructure) by the government as an explanation to why GDP is still lacklustre 5 years after the onset of the global financial crisis ( Increased capital spending would result in a rightward (positive) shift of the long run average cost curve. This would reduce bottlenecks meaning the economy can grow faster without seeing inflation rise by as much. In order to increase capital spending the government could undertake school building programmes (which may increase the education of the work force and hence allow a greater technological industry), increased railway building (See here), improve the road network, build or upgrade airports; particularly in the South East and build more hospitals (improving the health of citizens means they can work more).

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