Britain's economy shrank by a surprise 0.5% in the final quarter of 2010, putting pressure on the coalition government's strategy for getting the economy back on track.

The Office of National Statistics blamed the contraction on the cold weather seen during the period, which caused major disruption to business, bringing offices, road networks and airports to a halt for several days. The service and construction services were particularly badly affected.

While the weather may indeed have played a role, the uncertainty that it has now triggered about Britain's economic recovery has further thrown in doubt the government's austerity drive.

The latest critic came in the unlikely form of Mr Richard Lambert, the outgoing Director-General of the Confederation of British Industry, who has been a strong supporter of the government's ambitious plans to cut the deficit.

“It's not enough just to slam on the spending brakes,” he told delegates at a conference on Monday.

“Measures that cut spending but killed demand would actually make matters worse,” he said. With consumer demand lagging amid rising costs of living and high levels of personal debt, private sector investment and trade would be the main drivers of job creation and economic recovery going forward.

Biz growth

The Government's pledge to create a good climate for businesses growth had failed to materialise, and instead had let to a “few rather vague ideas about the scope for supporting a number of predictable sectors” and to policies where “politics appear to have trumped economics.”

A clear example of this was the immigration cap, brought in last year. After an outcry from businesses, the government was at pains to stress that the system it eventually laid out was done with the interests of businesses in mind “and avoided onerous restrictions on inter-company transfers. However, the cap continued to be a source of concern for companies and institutions, like universities, that need to bring international talent into the UK.”

Mr Vincent Cable, the Business Secretary who recently returned from a trip to India, was forced to defend the Government's record, arguing that there had been strong growth in manufacturing and exports.

“What he probably isn't aware of or acknowledges are the many practical things we are actually doing” he told BBC Radio 4's Today Programme on Tuesday, pointing to the India trip as an example of one of his initiatives to stimulate job creation and support British companies overseas.

“These are the things that will help British industry recover.”

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