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OBR says snow could save us from recession

The Office for Budget Responsibility (OBR) has said this week that a bout of snow in December could help the UK avoid entering a double-dip recession because it would push some economic activity into the next quarter and aid GDP for the first quarter of 2012.

The OBR has forecast that there is a one in three chance that the final quarter of 2011 and the first quarter of 2012 could see a contraction in the economy that would see the UK enter another recession.

A member of the OBR, Sir Stephen Nickell told a Treasury Select Committee that a severe bout of winter weather could cause a loss to business and the wider economy in December, but that this would just delay rather than cancel out planned spending.

However, he warned that this could serve to hide the true state of the economy and that care should be taken when analyzing the data.

This time last year the UK was just getting over its first severe disruption to services caused by snow. Then, in the crucial run up to Christmas for retailers another severe bout hit which meant that many people were unable to get to the shops and complete all of their Christmas shopping.

This situation was used as evidence for the final revised figure for economic growth in the last quarter of 2010 which showed that the economy shrank by 0.5 per cent. The adverse weather conditions were cited as the main factor for the fall in economic activity.

The UK has already seen some similar situations in 2011 when the earthquake and tsunami in Japan and the loss of one day of productivity in the 2nd quarter skewed the GDP data from March to June. The third quarter’s GDP figures were similarly affected as the world’s production lines made up for the loss of production caused by the disaster in Japan in that quarter.

Sir Stephen Nickell said: “If you have a huge bout of heavy snow before Christmas that will probably rule out a double-dip recession because GDP in the fourth quarter and bounce back in the first quarter.”

He made the remarks as he appeared before the select committee defending the OBR from criticism of their track record as an independent forecaster. Last week, the OBR cut its forecast for UK economic growth from 2.5 per cent down to just 0.7 per cent.

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