The UK is diving into stagflation - Is that so?

The UK's GDP unexpectedly shrank 0.5% in the last quarter, the first-time decline in five quarters since the Lehman crisis in the third quarter of 2009. The hardest hit was the construction sector which decreased 3.3% from the previous quarter, followed by the service sector which lost 0.5%. What caused it? According to the ONS,

The change in GDP in Q4 was clearly affected by the extremely bad weather in December last year. The disruption caused by the bad weather in December is likely to have contributed to most of the 0.5 per cent decline.

So, it's the bad weather to be blamed. Along with it, they also admit that

if there had been no disruption, GDP would be showing a flattish picture rather than declining by 0.5 per cent.

GDP wouldn't grow at all in the fourth quarter last year even without the bad weather.

Meanwhile, a cheap currency has contributed to the rise of the UK's inflation. In real terms, sterling fell more than 20% in four years, now one of the cheapest among major currencies. It's no doubt that weak sterling has pushed up the inflation rate through imports, and helped survive manufacturing industry in the midst of crisis which hit the UK's once-touted financial sector the hardest.



The problem is: Is a cheap currency enough to help float the UK economy?

Given the current trend of declining manufacturing and surging services in the UK economy, it's an open question whether a weak currency keeps on underpinning the economy through exports, ignoring rising inflation.