UK growth revised up to -0.5% for fourth quarter

The UK economy shrank by less than feared in the final three months of last year, official figures have confirmed. UK GDP in the fourth quarter of 2010 fell by 0.5%, not the 0.6% decline estimated last month , the Office for National Statistics announced on Tuesday. Although the revision was welcomed in the City, economists warned that the economic recovery remains delicate. The ONS also reported that real household disposable income fell by 0.8% during the year, as wages failed to keep pace with inflation. This is the first time that the amount workers take home after tax, adjusted for inflation, has fallen during a calendar year since 1981. Andrew Goodwin, senior economic advisor to the Ernst & Young Item Club, said this showed the extent to which consumers are being squeezed. He warned that the pressure will be unremitting during 2011. "Given the prevailing conditions for earnings and inflation, and factoring in next month's increase in national insurance contributions, we are likely to see another decline in real incomes this year." Disposable incomes have not suffered a back-to-back decline since the mid-1970s, Goodwin added. UK on "shaky ground" The ONS said that, without the snow that disrupted businesses and transport links in December, economic growth would have been flat in the quarter. The wintry weather wiped 0.5% off GDP as firms suspended operations and shoppers failed to reach the high street. Most City economists had expected that the ONS data would confirm the GDP decline of 0.6% reported in last month's first revision, which included a 0.1% contraction in the underlying economy. But the reading of minus 0.5% GDP remains the weakest quarterly performance since the second quarter of 2009, the depths of the UK recession . Vicky Redwood of Capital Economics warned that the UK economy was on "shaky ground". "The underlying picture of flat output is still very weak," Redwood said. Hetal Mehta of Daiwa Capital Markets pointed out that the economy "went into reverse" at the end of last year, following its initial strong recovery from the recession. "The underlying economic picture is weak. Though economic activity seems to have rebounded in January, there are signs of a marked slowdown since," said Mehta. Trade gap widens Activity in the construction sector shrank by 2.3% during the quarter, while the UK's dominant services sector contracted by 0.6%. Manufacturing grew by 1.1% between October and December. Business investment was flat, according to the ONS, up from its previous esimate of a 2.5% decline. The revision had little effect on the pound, which rose slightly to $1.603 against the dollar. The surprise upwards revision is welcome news for the Treasury, as George Osborne wrestles to cut public spending without derailing the recovery. However, the fragile state of the UK economy was underlined by separate data which showed that Britain's gap in trade in goods with the rest of the world had hit £26.8bn in the final quarter of 2010, the highest figure since records began in 1955. Trade in services - invisible earnings such as banking - brought in a net surplus of £12.1bn. The overall trade gap rose to £10.488bn during the quarter, the largest current account deficit since the second quarter of 2009.