Tags: EU | Britain | Economy

UK Recession Was Deeper Than Earlier Estimated

Monday, 12 Jul 2010 10:15 AM

Britain's recession was deeper than estimated previously, official statisticians said Monday, as they confirmed that the economy grew by only 0.3 percent in the first three months of the year.

Britain entered recession in the fourth quarter of 2008 and exited in the last quarter of 2009. However, analysts said details of Monday's report raised questions about how robust the recovery is.

"The domestic side of the economy looks very vulnerable," said Hetal Mehta, chief economist for Ernst & Young's ITEM Club.

The Office for National Statistics said GDP fell by 6.4 percent from peak to trough during the recession, worse than the 6.2 percent drop reported previously.

Furthermore, the recovery seems to have been more dependent on temporary stimulus measures than earlier estimated.

Government spending, earlier reported to have risen by half a percent in the first quarter, actually rose 1.5 percent, Monday's figures showed. A rise in investment of 4.6 percent was boosted by a 15 percent increase in government investment, the largest since the start of the recession.

Consumer spending fell by 0.1 percent, the household saving ratio dropped from 7.2 percent in the fourth quarter to 6.9 percent, and the net trade deficit rose from 7.4 billion pounds to 10.4 billion pounds.

"The impact of strong government spending, ahead of the election period, was very visible. The forthcoming era of austerity will soon consign increases of these magnitudes to the annals of history," said Philip Shaw, Investec's chief economist.

"The fact that sterling's significant depreciation has so far failed to boost net trade is worrying. And since the euro zone has plunged back into turmoil, and global growth may be slowing down, there are increasing risks to U.K. export demand," said Mehta, who nonetheless expected second-quarter growth to accelerate to 0.5 percent or better.

The final figure for quarterly GDP normally gets little attention, but concern had been raised when the agency said it was delaying publication because of potential errors in the calculation published in May. Monday's report shed no light on what errors had been suspected.

"Today's releases highlighted the fragile nature of the recovery so far," said Vicky Redwood, senior U.K. economist at Capital Economics.

"Overall, then, we still doubt that the economy is in a good position to withstand the fiscal squeeze," Redwood added.

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Britain's recession was deeper than estimated previously, official statisticians said Monday, as they confirmed that the economy grew by only 0.3 percent in the first three months of the year.Britain entered recession in the fourth quarter of 2008 and exited in the last...
EU,Britain,Economy
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2010-15-12
 

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