• Entente cordiale? French foreign minister ends war of words
• UK third-quarter growth revised higher but US revised down
• Stock markets bounce back
• Lunchtime round-up
• Today's agenda
• Live blogging now: Graeme Wearden
Time to wind things up for the day. Many thanks for reading, and to those who commented. Goodnight, and very best Christmas wishes.
We have a late breaking credit rating downgrade (a real one, this time). Slovenia has been cut by one notch by Moody's, from Aa3 to A1 (so from the 4th to 5th highest rating).
Moody's also left Slovenia on a negative outlook, suggesting the rating could be cut further.
The agency blamed the eurozone debt crisis for the deteriorating funding conditions faced by the Slovenian government. It added that the country's banks are being rocked by the crisis, making it harder for them to access funding.
Energy and climate change secretary Chris Huhne has weighed into the issue of Britain's place in Europe, warning that the UK must not drift away from the EU in the aftermath of David Cameron's treaty veto.
In an interview in tomorrow's Independent, the pro-European Liberal Democrat minister argued that the UK could become "semi-detached" if Tory eurosceptics are allowed to dictate government policy. That would leave Britain unable to influence European policy at a crucial time.
Huhne said that:
A lot of the Conservative right pine for some semi-detached status where we would be like Norway or Switzerland - enjoying the benefits of the single market without being a members of the EU.
So France and Britain may be friends again, but there's less cordiality in the coalition government.
The Dow Jones industrial average just closed for the day, up 63 points at 12,170.
Hardly a major rally, but the chatter on Wall Street is that the US economy may enter 2012 in better shape than feared. The key factor is whether American consumers keep spending this Christmas.
As Peter Boockvar, equity strategist at Miller Tabak, said:
We'll soon see if the rise off the summer low in confidence translates into a good gain in holiday sales.
Back in the land of hard facts, Hungary has refused to cave in to pressure from the European Union over changes to its Central Bank (see here for more info).
Prime minister Viktor Orban went on national TV tonight to announce that he had rejected a request from EC commissioner Jose Manuel Barroso to abandon legislation shaking up the Bank of Hungary. Orban said:
I told him there was no possibility to delay...as our constitution will take effect on January 1st.
This matters because Hungary is already seeking more help from the international financial community, but its shake-up of its central bank (seen as a takeover attempt by the bank's own governor) caused a breakdown in negotiations last week.
Orban could be playing with fire.....
Update: A little embarrassingly, the reports of S&P handing Goldman Sachs a gift-wrapped downgrade don't appear to be true (see deleted line below). S&P is insisting that it's made no such move. As you were!
The rating agencies clearly haven't clocked off for Christmas -- Standard & Poor's just cut Goldman Sach's credit rating from AA- to A+.
Lorenzo Bini Smaghi, the Italian economist who is stepping down from the European Central Bank, has given a fascinating interview to the Financial Times.
In it, Bin Smaghi suggests that the ECB could abandon its opposition to quantitative easing -- creating new money to buy up huge quantities of eurozone sovereign debt.
This 'big bazooka' option has been consistently ruled out, but Bin Smaghi reckons the ECB may have to change course. As he put it:
I do not understand the quasi-religious discussions about quantitative easing....
...if conditions changed … I would see no reason why such an instrument, tailor-made for the specific characteristics of the euro area, should not be used.
One reason is that Ms Merkel of Berlin might lose her rag, as QE's inflationary impact is hugely unpopular in Germany.
Bin Smaghi, though, is somewhat scathing about the behaviour of certain
European leaders since the crisis began. He said policymakers were wrong to "hide behind lawyers to avoid taking action".
The full interview is here on the FT's web site.
Bin Smaghi is quitting the ECB following the arrival of his compatriat Mario Draghi, following concerns that the committee would otherwise be too dominated by Italians.
It appears that Sir Mervyn King was on rib-tickling form at his press conference in Frankfurt this afternoon.
Julia Werdigier, New York Times reporter, has the details:
@jwerdigier Mervyn King just wished everyone at the press conference a merry christmas and a "systemically stable 2012" #centralbankhumor
Speaking of the festive period, the bad news is that the cost of Christmas dinner has jumped by an inflation-busting 7.5% this year. The cost of coffee, red wine and gammon have all risen, but the biggest jump is in the cost of the humble cream cracker – up 51% since December last year from 55p to 83p.
Sir Mervyn King and the rest of the European Systemic Risk Board may not have discussed the possible break-up of the eurozone today (see 4.50pm), but the issue isnt' going away.
Capital Economics warned this evening that the future of the eurozone is the single biggest factor that will affect the global economy in 2012. It is adamant that one or more country will quit the euro in the next 12 motnhs, with Greece the obvious front-runner.
In a research note tonight, Capital Economics told clients that:
Just how US banks cope with the euro-zone crisis, which we believe will involve the departure of at least one nation from the currency union next year, could make or break the US economy in 2012.
With a presidential election due in 11 months time, America's economy will come under more scrutiny than ever next year. Fitch's warning that the US AAA credit rating could be cut has created added pressure.
As the eurozone crisis slides gently towards the end of the year, the signs in the bond market are not encouraging.
Italian debt has fallen in value today, as the brief optimism generated by yesterday's huge ECB loan operation peters out. This has pushed the yield on Italy's 10-year bonds back up to 6.9% this evening, up from 6.7% last night.
Spanish debt is also being hit, pushing its yield up to 5.4%.
As Niels From, analyst at Nordea, put it to Reuters:
What happened yesterday is not a silver bullet to the crisis but it is too soon to see the impact yet.
A Chinese power company took control of part of Portuguese energy company EDP today, as the country's sale of various state assets got underway.
In a sign of the changing power in the world economy, China's Three Gorges Corp's offer of €2.69bn for the Portuguese government's 21% stake in EDP-Energias de Portugal SA was accepted.
This is thought to be the biggest ever deal in which a mainland Chinese firm has bought a stake in a southern European company. It comes after Europe has repeatedly lobbied the Beijing government to help with the eurozone debt crisis.
Analysts believe Three Gorges is keen to take advantage of EDP's assets in Brazil -- like China, an emerging superpower.
More details of Sir Mervyn King's press conference this afternoon (see last post). King said that the European Systemic Risk Board "have not discussed the possibility of a country leaving the eurozone".
King also sent a chilling warning to the financial sector, saying:
If any banker thinks in future that they are too big to fail, then they are very much mistaken.
A grim warning from Sir Mervyn King, Bank of England governor -- "the warning lights are flashing red" across the Eurozone.
In his role as the head of the European Systemic Risk Board (ESRB), King said that the situation in Europe has worsened in the last three months (no argument there), with the real economy now suffering.
Speaking after the ESRB held its quarterly meeting in Frankfurt, King said:
The overal situation has worsened as a result of the intensification and negative interlinkages between the sovereign risks and uncertainty about the resilience of the financial system and on the account of deteriorating growth prospects.European bond markets continue to be impaired.
More as we get it.
In the stock markets, traders are doing what they can to end the year in good spirits. But it's a struggle. The FTSE 100 is up 58 points at 5447, while in New York the Dow has risen by a mere 28 points to 12,136.
Volumes are pretty light, as investors knock off for Christmas (tomorrow is a half-day session in the City). Brenda Kelly, market analyst at CMC Markets, said there was a "much more buoyant mood across the board".
There had been fears that the downward revision to US GDP for the third quarter of 2011 might spook the markets. But no. As Kelly explained:
The downward revision in growth to 1.8% from 2.0% for U.S. GDP for the third quarter was shrugged off as something to be consigned to the history books.
Relations between the European Union and Hungary hit a new low today.
The European Central Bank warned this afternoon that a draft law before Hungary's parliament would undermine the independence of its central bank. In a rare move, the ECB publicly criticised Prime Minister Viktor Orban's government for trying to take control of the National Bank of Hungary.
The ECB suggested that the country was acting unlawfully by changing the legal framework of its central bank. Orban's attempt to increase the number of deputy directors and members of the bank's monetary council is also seen as an attempt to undermine its governor.
The move came a day after S&P downgraded Hungary to Junk over the same issue.
Yesterday Hungary accused S&P of a deliberate attempt to undermine the European Union. Hard to accused the ECB of the same crime...
Britain and France may be divided by language and the English Channel, but the two countries have something in common -- they're extremely worried about their economies.
A survey fo 24 countries by Ipsos Mori survey found that the French are the most pessimistic about the future, with just 7% describing the French economy as "good" and a mere 2% saying they were optimistic about the next six month.
The Uk fared little better, with 10% of people describing their economy as 'good', and 9% believing it will improve by the middle of 2012.
With France heading into a recession and the UK likely to post little growth over the next six months, it's hard to argue with the public view.
Germans, though, are much cheerier -- with 64% believing their economy is currently good, and 15% saying their country will be stronger in six months.
The Americans are also feeling rosier, with 20% of people believe their economy will improve in the next six months.
Bobby Duffy, managing director at Ipsos MORI, said:
Even within Europe, which does face real dangers in the coming months, there is a stark difference between high confidence countries (like Sweden and Germany) and low confidence countries (like the UK and France).The UK ends the year much as it started - bumping along the bottom of the international confidence table.
Afternoon all. Mario Monti has just received an early Christmas present -- the Italian Senate has officially approved his €33bn austerity plan.
Monti had made the issue a 'vote of confidence', so failure to appove the programme would have plunged Italy into more political chaos.
Many ordinary Italians may not share Monti's relief. The package aims to balance Italy's budget by 2013, in an effort to reassure the financial markets that the country can repay its debts. Unions fear that the burden will fall heavily on the poorest in Italian society.
The programme includes higher VAT rates, a new local housing tax, cuts to health spending, an increase in the state pension age to 66, and a higher retirement age.
Monti is also gunning for Italy's tax evaders by outlawing cash transactions above €1,000.
I am handing over to my esteemed colleague Graeme Wearden. Thankyou all for your great comments and Happy Christmas!
Travel chaos looms for many people heading to European destinations this Christmas. AP reports:
Strikes to protest austerity measures paralysed ground traffic in Belgium and hit Christmas travelers in several nations across Europe, promising days of headaches through the holidays. Workers were walking off the job to show their ire at budget-slashing measures by their governments to tackle debt and high deficits, and officials were scrambling to try to mitigate delays and cancellations.
Eurostar and Thalys idled part of their popular service through Brussels as Belgian transport workers walked off the job. In France, a strike by airport security personnel stretched into its seventh day, and in London, football club Arsenal postponed its day-after-Christmas game against Wolverhampton Wanderers by 24 hours because of a planned public transport strike on the UK's Boxing Day holiday.
The French government, anxious to avoid angering voters ahead of next spring's presidential election, was looking at options on Thursday to get police to replace security personnel and make sure Christmas Sunday is as undisturbed as possible.
"The issue is to have airplanes take off so that the French people who have had a tough autumn and are feeling the crisis can get to their families and not be blocked at airports," Transport Minister Nathalie Koscusko-Morizet said on France Info.
In Greece, train workers planned a five-hour work stoppage from noon Thursday, and in Spain more airline and transport action is expected next week.
The major unions in Belgium were protesting against pension reform being pushed through Parliament for early next year that would require people to wait two years longer before early retirement. All but one of Belgium's major airports were operating close to normal, but intermittent road blocks by strikers worsened road delays around the capital. The strike also affected postal services, schools and hospitals.
At the Brussels South train station, the tracks of the popular Eurostar and Thalys trains linking London and Paris through Brussels with Amsterdam and Germany, remained empty.
"Eurostar and other onward connecting rail services will not be able to operate to or from Brussels during this period," the rail company said of the 24-hour strike. Simply waiting a day would be tough for holiday travelers since the trains are often fully booked for days on end. All local lines were canceled on Thursday, too, keeping many workers home.
In Paris, the airport security personnel strike continued but delays were shortening and no flight cancellations were recorded at De Gaulle, Paris' busiest airport Wednesday.
Unions representing workers who conduct patdowns on travellers and operate the bag-screening machines launched the walkout a week ago to demand negotiations over an increase in pay. It was timed for maximum effect during the holiday getaway season.
David Semmens, US economist at Standard Chartered Bank, has crunched the latest US numbers.
GDP comes in a bit lower than the market was looking for at 1.8% q/q, against 2.0% expected. The composition is less favourable with the consumer adding 1.24 percentage points against the 1.63ppt previously forecast, while inventories drag less (-1.35ppt against -1.55ppt) previously forecast and net exports add 0.43ppt against 0.49ppt previously stated. The greater inventory build-up leaves less potential additions going forward, whereas the slow-down in net exports it is driven by an increase in activity, but with just more imports (-0.21ppt against -0.09ppt prior) than export (0.64ppt against 0.59ppt prior) growth.
While the downward revision to consumption should help keep the consumer's woes in mind, we are more concerned that this comparatively slow increase came in a quarter when the US consumer cut their savings rate from 5.0% to 3.3%. We still maintain that the consumer will stay supportive for growth, especially as hiring improves albeit modestly in 2012, but the continuation of the deleveraging process should keep any optimism in check.
What is more comforting is the drop in initial jobless claims to 364k against 380k expected, this is the lowest since April 2008. This continues to reinforce our opinion that the labour market is on the mend, but there is still a significant pick up in hiring needed to make any dent in the unemployment rate. We continue to expect labour demand to stay around the level to keep unemployment relatively constant ~150k during 2012 but there is still plenty of scope for upgrading those working part-time closer to full time.
Our Wall Street correspondent Dominic Rushe looks ahead to the market open:
It looks like the US stock markets are going to get off to a good start. The Dow Jones Industrial Average futures are up 57 points, or 0.5%, ahead of the market's opening bell. The Dow closed up four points on Wednesday, and is up 341 points, or 2.9%, in two sessions.
Standard & Poor's 500-stock index futures and Nasdaq futures are also up. Futures contracts don't always work as indicators of which way the wind is blowing but up is better than down.
There's no escaping death and taxes, particularly in Greece. Hearse owners became the latest professional group to join anti-austerity protests today, taking part in a protest drive through the centre of the country's two main cities.
They are worried that a sharp rise in annual road taxes could put them out of business. The protesters say their cars have been reclassified as private instead of business vehicles, which means they will pay up to six times more in road tax by the end of next week for 2012. Hearse drivers say their vehicles will now be taxed at the same rate as luxury cars, with higher import duties and annual fees.
"How can you call a hearse a regular car? Our passengers are deceased," protester Aris Karvounidis, a member of the Funeral Services Association of Northern Greece, told AP.
In Thessaloniki, Greece's second largest city, protesters drove their (empty) vehicles which were empty from the main cemetery to a regional government building, while colleagues in Athens slowed traffic as they passed parliament.
Desperate to rein in overspending, Greece's government has imposed a punishing regime of emergency taxes on pensioners, homeowners and salaried workers, while sweeping away dozens of welfare benefits and tax exemptions.
Some 1,580 demonstrations hav been held in Athens this year, as workers for the government and struggling private companies saw their wages slashed, and decades-old protective labour laws were scrapped.
The country has been surviving on rescue loans from eurozone countries and the International Monetary Fund for the past 19 months, pushed to the brink of bankruptcy by its massive national debt and high borrowing rates.
Some mixed figures out from the US. Jobless claims were better than expected, falling to the lowest since April 2008 which suggests the recovery in the labour market - and the wider economy - is gathering steam.
New claims for unemployment benefits dropped 4,000 to a seasonally adjusted 364,000, the Labor Department said. Economists at Goldman Sachs said this week that weekly claims below 435,000 pointed to net monthly gains in jobs.
But economic growth in the third quarter was revised lower to an annualised rate of 1.8% from 2%, wrongfooting Wall Street economists who had expected no changes.
Time for a lunchtime round-up.
• France's foreign minister says Sarkozy's snide comments about the UK went further than he wished.
• UK third-quarter growth was revised higher – but the ONS also said the economy stalled in Q2
• Stock markets are bouncing back with the FTSE 100 up 65 points (1.2%) to 5,454 at 1.20pm.
• A 20% jump in sales at John Lewis has been welcomed as sign of "genuine hope" for retailers.
• And, a tiny town in Spain found itself richer by €720m after winning nation's El Gordo lottery
Entente Cordiale. Alain Juppé, France's foreign minister, has called time on the war of words between UK and France.
Juppé said recent comments by Nicolas Sarkozy (who is said to have described David Cameron as a "stubborn child") and Jean-Pierre Jouyet, head of France's financial regulator (who said the UK had "stupidest Right in the world") went "further than their authors wished".
There is not an ounce of doubt that Franco-British relations, that will become excellent once again as we have too much in common to allow them to deteriorate. I cannot imagine that we will push Britain out of the European Union.
We will not allow the European Union to unravel. The explosion of the euro would be the end of the EU.It would spell catastrophe that could end up for the worst.
Some good news. John Lewis sales between Sunday and yesterday are up 20.7% compared to the same period last year.
It looks like John Lewis's boss, Andy Street, can say 'I told you so' to the City analysts who had cast doubt on his optimistic Christmas expectations.
(But it was quite snowy last year, which makes comparisons a little tricky)
David Barford, JL's director selling operations, says:
In-store sales have benefitted from the festive atmosphere created by partners (employees), while online sales soared in the run up to the cut off deadline for delivery yesterday, albeit when compared with snowy conditions last year.
Here are some more details from Reuters:
The 20.7 percent figure is a gross number, inclusive of VAT sales tax and new space.Analysts estimate the underlying figure to be about 13.7 percent, excluding VAT and new space.
On Sunday John Lewis reported gross sales for the week to Dec. 17 up 10.6 percent to 133.1 million pounds ($208.49 million), the highest weekly level in the company's history.
With Britons' disposable incomes being squeezed by rising prices, muted wages growth and government austerity measures, most retailers are nervous about spending in the key Christmas period and discounting is rife.
John Lewis has, however, been outperforming rivals for over a year. It will next update on trading on Jan. 4.
Howard Archer, chief UK economist at IHS Global Insight, said John Lewis's figures provide "genuine hope" for retailers.
The latest John Lewis half-weekly sales show welcome substantial improvement, with sales up 20.7% year-on-year in the four days trading to Wednesday 21 December. Of course, it needs to be borne in mind that sales were affected a year ago by bad weather, and that there are four more John Lewis stores trading than a year ago and that prices are significantly higher. Nevertheless, it still looks a decent performance
Given that John Lewis is often seen as a bellwether for the state of the high street, the marked increase in sales provides genuine hope for retailers that many consumers have left much of their Christmas shopping very late – probably in the hope that struggling retailers will step up their promotions and discounting.
Pope Benedict XVI has, once again, turned his attention to the eurozone crisis suring a speech in Rome.
As this year draws to a close, Europe is undergoing an economic and financial crisis, which is ultimately based on the ethical crisis looming over the Old Continent. Even if such values as solidarity, commitment to one's neighbour and responsibility towards the poor and suffering are largely uncontroversial, still the motivation is often lacking for individuals and large sectors of society to practise renunciation and make sacrifices. Perception and will do not necessarily go hand in hand.
Some headlines coming out of Italy have popped up on Reuters. New prime minister Mario Monti said Italy will be able to face the eurozone crisis with its head held high after passing his austerity budget. He acknowledged that the government will face the enormous task of stimulating growth after the budget has been passed. Labour market reform will require more dialogue with unions and employers. He also called on Italians to buy government bonds.
Results just in from Spain's El Gordo, the world's biggest Christmas lottery, which has brought some Christmas cheer to a small town in the north east. For those who lost out, there is the 'El Niño' lottery on 6 January.
PA reports:
A tiny town of 2,000 in cash-strapped Spain found itself richer by €720m Thursday after scooping the top prize in the nation's famed Christmas lottery.
The top prize dubbed "El Gordo" (The Fat One) was split among the holders of tickets bearing the number 58268. The number appeared on 1,800 tickets, giving winners 400,000 for their 20 ticket.
The state lottery agency said all 1,800 tickets with that number were sold in the town of Granen, located in the arid and barren northeastern Los Monegros area.
Spain is struggling to emerge from a near two-year recession that has left it with a eurozone-high 21.5% unemployment rate.
The lottery aims for a share-the-wealth system, rather than a single jackpot, and thousands of numbers yield at least some kind of return. Lots of people chip in together and buy shares of several or many tickets, meaning it is common for multiple prizes to go to the same town. Other lotteries have larger individual top prizes but El Gordo is ranked as the world's richest for the total sum paid out.
The winning number was picked and announced by pupils of Madrid's Saint Ildefonso School in a nationally televised draw.
Since it began in 1812, the 22 December lottery has become a favorite holiday tradition. This year, it sold an estimated 2.7 billion in tickets and the state lottery agency estimated per-capita spending of about 70.
Spain holds another big lottery 6 January to mark the Feast of the Epiphany. It is known as 'El Niño' (The Child), in reference to the baby Jesus.
A key confidence vote for Italy's new leader Mario Monti is scheduled for this afternoon.
Tom Kington reports from Rome:
Mario Monti's austerity budget is expected to pass its final obstacle today – a confidence vote in the Senate – with the results of voting due around 3pm Rome time.
Monti himself will address the senate before the vote, braving senators from the Northern League party who yesterday barracked a government undersecretary.
The government is promising measures in the new year to liberalise the economy to supplement the budget, which is heavy on tax hikes and spending cuts, but welfare minister Elsa Fornera already appears to be have backtracked on plans to making firing staff easier.
Pierluigi Bersani, the head of centre-left Democratic Party, one of the key backers of the technocrat Monti government, said yesterday, "It is absurd to think you can create jobs by firing people."
Former prime minister Silvio Berlusconi indicated his concerns about the budget by claiming a planned limit on cash purchases to cut down on tax dodging would prevent Italian men shopping behind their wives' backs.
While Italy's parties are still happy to step back while Monti undertakes vote losing cuts, they know their backing for him may ultimately lose them votes too, so the longer Monti puts off the wholesale reforms of the economy the EU is demanding, the more he risks a revolt in parliament.
A spate of bombings in Baghdad has pushed oil prices higher. Brent crude climbed to more than $108 a barrel as the violence sparked fears of further disruption to Middle East oil supplies.
David Wech, head of research at consultancy JBC Energy in Vienna, told Reuters:
Geopolitical developments are underpinning oil. There is clearly a risk premium in the market.
Bad news for meat eaters and wine lovers. The Office for National Statistics says the average cost of a Christmas dinner has gone up this year, with the price of some items jumping by as much as 50% since last Christmas.
Turkey, wine, chicken and cheese have all gone up in price since last Christmas. Cream crackers have increased the most, by 50%. Only some vegetables (carrots and potatoes) have become cheaper.
Chris Beauchamp, market analyst at IG Index, has looked at today's movements.
In mid-morning trade the FTSE 100 has managed to push higher as the wind-down to Christmas begins in earnest.
London has succeeded in shrugging off a weak overnight performance in Asia, as traders take heart from the relative recovery of Wall Street last night. Bank shares are at the forefront this morning, as financial stocks benefit from the ECB's largesse yesterday, while BA's parent company International Airlines is on the ascent on news that it has bought British Midland from Lufthansa. GDP figures on the UK provided little in the way of excitement, with third-quarter growth lifted by 0.1% to 0.6%. Any nascent optimism generated by this was quickly demolished by a downward revision to the second quarter's figure, which was cut from the Scrooge-like 0.1% growth to no growth at all.
Trading this afternoon might get a bit more interesting, given the avalanche of US data out later. On the slate today is a revision to the US' third-quarter GDP reading, the usual weekly jobless claims and the final December reading from the Michigan confidence index. US futures have pushed on, with the Dow expected to start around 50 points higher today, the last full day of trading before Christmas.
Stock markets have bounced back today: the FTSE is up more than 60 points at 5451, a 1.1% rise, while Germany's Dax has climbed 84 points, or 1.5%, and France's CAC has added nearly 43 points, or 1.4%.
On bond markets, the yield, or interest rate, on Spanish ten-year bonds has risen to 5.37% while the Italian yield has slipped to 6.79%.
Let's turn to Belgium, where a
particularly well-timed 24-hour pre-Christmas public sector strike to protest pension reform has hit rail and bus traffic across the country, but major airports were operating close to normal.
AP reports:
Thursday's rush-hour train traffic was dense but not as chaotic as expected as many people decided to take a day off or work from home. Intermittent road blocks by strikers worsened delays around the capital. The strike major trade union strike also affected postal services, schools and hospitals.
The action was taken after the government confirmed plans to make people wait two more years before they can take early retirement, and other measures to get a handle on the pensions budget.
The reforms are part of a slate of austerity measures approved by prime minister Elio Di Rupo's coalition to get Belgium out of the economic crisis.
Some instant reaction to the GDP data from James Knightley at ING
The revisions largely related to investment spending while the income breakdown showed a sharp upward revision to industrial production. However, this all relates to data that is more than three months old and the outlook fir growth is darkening. The Eurozone sovereign debt crisis is hurting business confidence, making firms reluctant to both hire and invest. Consumer confidence also remains weak given rising job insecurity and negative real wage growth. Meanwhile fiscal austerity is dampening government spending and the deteriorating Eurozone economy is a massive threat to exports. Consequently, a return to recession is looking increasingly likely.
And here is a pretty gloomy view from Vicky Redwood, UK economist at Capital Economics.
The big picture is that the [UK] economy has ended the year on a pretty weak note. We are forecasting a relatively mild recession, involving a 0.5% contraction in GDP. However, clearly a much more severe downturn than this is possible.
Our forecasts are based on the assumption that the eurozone breaks
up, but in a limited and fairly orderly fashion. A more chaotic break-up, perhaps involving a renewed seizing-up of the interbank lending market, could see a drop in UK output more akin to the 7% contraction seen during the 2008/09 recession.
More detail on the GDP numbers. Services grew by 0.7%, revised higher from 0.6%, while construction was revised even more strongly to 0.3% growth from a 0.2% contraction. Industrial production was revised down to 0.2% growth from 0.4%, though.
We are also saving more. The household saving ratio climbed to 6.6%, the highest since the end of last year.
The ONS also said that Britain's current account deficit hit a record high of £15.2bn, from £7.4bn in the second quarter. This is equivalent to 4% of GDP and the biggest since quarterly records began in 1955.
The UK economy grew faster than originally thought in the third quarter, thanks to stronger services and construction output. The Office for National Statistics said GDP was up 0.6% on the quarter, rather than the previously estimated 0.5%.
This comes as a surprise to City economists who had expected no revision. However, the economy did not grow at all in the second quarter - the figure was revised lower from 0.1% growth - and economists believe growth slowed down sharply towards the end of the year and into 2012.
In Spain, the countdown has begun for the world's biggest Christmas lottery - 'El Gordo' (the Fat One). Cash-strapped Spaniards have been queuing up in the streets to buy tickets in the hope of becoming millionaires overnight.
There are 180 first prizes of €4m each - the biggest payout ever - and another 180 second prizes worth €1.25m each, as well as 322,920 prizes of €1,000 each. There are also thousands of small value prizes known as 'Pedrea' (shower of stones). In total, the lottery will pay out €2.5bn in today's draw, in 2.75m individual cash prizes. The results are expected to be announced around 4pm CET (3pm GMT).
The first El Gordo took place way back in 1812 and the El Gordo Navidad hasn't changed much since then. This lottery boasts the largest prize pot in the world and is held this year for the second time at the Palacio de Congresos de Madrid. It is open to the public, with limited seating, and is televised nationwide, bringing the country to a standstill during the theatrical draw which is expected to last three to four hours.
The average Spaniard is said to have spent more than €60 on lottery tickets. Whole villages club together to buy tickets. The cost of a ticket is €200 but because this is too pricey for many people tickets are divided into 10 fractions called "décimos". Each décimo is worth €20 and will win a tenth of the prize should the ticket be drawn.
"I am spending more than last year, 100 euros, and I am sharing the tickets with my friends and family," AFP quoted a 48-year-old office worker, Victoria, as saying. "Some of them are having a very tough time financially and I want us to win."
The country as a whole stands to benefit: El Gordo is expected to bring a profit of €1bn to the treasury coffers.
so what is happening today? The agenda:
• UK final GDP figures for third quarter: expected to be unrevised at 0.5%
• US final GDP figures for third quarter: forecast to be unrevised at 0.2% annualised rate
• Italian confidence vote for new PM Mario Monti in the Italian Senate on the latest austerity budget this afternoon
• El Gordo - Spanish Christmas lottery result expected at 3pm London time
As expected, stock markets have opened higher. The FTSE is trading more than 40 points higher at 5432, an 0.8% gain. Germany's Dax and France's CAC are both up 1.5%.
In Greece, PSI talks are on the verge of collapse as Madrid-based hedge fund Vega threatens to sue Greece for excessive haircut. Vega wrote to fellow investors to say it would consider suing if Greece insisted on writedowns of more than half the net present value of the debt. More in this FT story.
Europe's financial crisis is even threatening the stability of Egypt's financial system, credit ratings agency Moody's warned yesterday as it hit the country with a one-notch downgrade (from B1 to B2 - deep into 'junk' territory and just five notches from Default).
Royal Bank of Scotland's chairman is stirring things up with comments that he is expecting a "small country" to leave the euro zone, which would put more strain on the world's banking system.
Philip Hampton told Sky News in a prerecorded programme scheduled to be broadcast today:
I think it is likely that one country, a small country, will drop out.
It could be any of them because I think that some of these things will be driven by political events as much as by economic circumstances and social unrest, and all of those sorts of things. But I think there is a very good chance that one country will fall out.
Hampton said the British banking system had not been fixed yet, although the sector was "very much on the mend".
Good morning. Welcome back to our rolling coverage of the world economy and the eurozone debt crisis.
Europe's main stock markets are set to open slightly higher, even though the European Central Bank's lending to banks yesterday failed to ease worries over the debt crisis.
And ratings agency Fitch warned last night that it may downgrade America's triple-A credit rating, pointing to its rising debt burden. Meanwhile, Hungary saw its credit rating slashed to Junk status, by Standard & Poor's.
Final GDP figures for the third quarter from the UK and the US, due at 9.30am and 1.30pm London time respectively, could shed more light on the health of the British and American economies. Economists don't expect any revisions to the main numbers (0.5% quarterly growth for the UK and 2% annualised growth in the US) but the detail could be interesting.
Financial spreadbetters expect London's FTSE 100 index to open around 10 points higher, or up 0.2%, Frankfurt's DAX to open 10 points higher, or 0.2%, and Paris' CAC to open 8 points higher, up 0.3%.
Asian stocks slipped, with the Nikkei in Tokyo falling 0.8% and Hong Kong's Hang Seng down 0.3%.
Japan cut its forecast for economic growth to 2.2% from 2.7% to 2.9% for the fiscal year starting in April. The government expects market turbulence from Europe's debt crisis to subside next year and exports to recover as overseas economies pick up, a Cabinet Office official explained. For the current year ending in March, Japan's government slashed its forecast to a 0.1% contraction from the 0.5% growth predicted previously, reflecting the impact of the earthquake and tsunami in March.
European banks snapped up almost €500bn (£417bn) in cheap three-year loans from the ECB yesterday, easing credit crunch worries but fuelling fears over the health of financial institutions and the role of the central bank in fighting the crisis.
Michael Hewson, market analyst at CMC Markets, said:
Yesterday's version of QE by the back door by the ECB saw the single currency gain initially before the realisation set in that the high take-up of 523 banks suggested that the European Banking system had been on the verge of a financial aneurism as banks struggle to raise funds. While it may buy vulnerable banks some time, it is certainly no solution to the wider problem of slow or no growth. Furthermore the failure to deal with the failing banks also puts the good banks under pressure, as there is no discernible way to distinguish them.
Italian and Spanish bond yields also continued to rise despite the free money, suggesting that the banks were resisting the temptation to implement the bond carry trade that the cheap finance presented it with.