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Tags: EU | Britain | Economy

U.K. Economy Grows 0.1 Percent to End Recession

Tuesday, 26 January 2010 07:14 AM EST

Britain's worst recession since World War II is officially over — but only just.

Gross domestic product rose a feeble 0.1 percent in the final quarter of 2009, the Office for National Statistics reported Tuesday.

That was enough to officially end a grinding 18-month downturn that has seen 1.3 million people lose their jobs. Britain is the last of the major economies to return to growth after the global credit crunch.

But the figure fell short of expectations of a stronger 0.3 to 0.4 percent rise.

Capital Economics economist Jonathan Loynes said the figure, a first estimate that will be revised twice as more data is analyzed, was "a major blow to hopes that the U.K. economy had emerged decisively from recession."

The economy will be a major issue in Prime Minister Gordon Brown's bid to be releected in a general election that must be held by June. Tuesday's growth announcement had been much anticipated — leading the usually media-shy statistics office to hold a rare televised press conference in central London to announce the figure.

The statistics office's chief economist, Joe Grice, acknowledged that the first estimate, which is based on 40 percent of the data used to reach the final figure, could easily be revised up or down by around 0.1-0.2 percent.

A revision of a negative 0.2 percent in the next estimates, due at the end of February and March, would nix Britain's recovery from recession, but Grice declined to comment on the possibility of that outcome.

"We don't know on the evidence we have," he told reporters, noting his job was to analyse data as it became available, rather than make forecasts.

Hetal Mehta, senior economic advisor to the Ernst & Young ITEM Club said that the preliminary estimate appeared to be at odds with more upbeat survey data, including the expected positive impact of a yearlong reduction in sales tax on retail sales.

"There is a strong possibility that the Q4 figures will be revised up," Mehta said.

Loynes agreed that an upward revision was possible. But he said it wouldn't change the big picture of an economy operating far below pre-recession levels and major budget deficits looming.

"With household incomes under pressure, credit in short supply and a major fiscal squeeze looming, the path to a full recovery is going to be a long and bumpy one," he added.

Britain is the last of the major industrial countries to exit recession, with the French and the German economies returning to growth last summer.

It was hit particularly hard by the global credit crunch because of its huge banking and financial-services sector centered in London, which had to be propped up by the government's multibillion-pound bailout of major banks, and higher levels of personal debt among consumers. Like the U.S., it also faced a collapsed real estate bubble.

The fallout cost the country 100 billion pounds ($160 billion) in lost output as GDP shrank 6 percent over the 18 months of the downturn. Some 1.3 million people were laid off, unemployment rose as high as 7.9 percent and around 50,000 families had their homes repossessed.

Statistics office economist Grice said that the fourth quarter showed a uniform picture of small increases across the distribution, hotels and restaurants and government sectors.

Output of manufacturing and other production industries, which have had the deepest slump, rose by 0.1 percent, as did the services sector, which represents around 70 percent of the economy.

Economists had expected GDP to be supported by strong pre-Christmas sales as shoppers tried to beat an increase in the sales tax on Jan. 1, a government-sponsored vehicle scrappage program, the revival of exports and a slow recovery in the massive services sector.

IHS Global Insight economist Howard Archer said he now expected the economy to struggle to grow by more than 1 percent this year, adding that the Bank of England would likely keep interest rates at the current record low of 0.5 percent until the end of the year and possibly beyond.

The central bank's Monetary Policy Committee will take the GDP figures into account when it meets next week to discuss the level of interest rates and whether to extend its program of purchasing assets to boost the money supply.

The 200-billion-pound program is due to be completed by early February, just before the committee's meeting on Feb. 3-4.

© Copyright 2023 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Britain's worst recession since World War II is officially over but only just.Gross domestic product rose a feeble 0.1 percent in the final quarter of 2009, the Office for National Statistics reported Tuesday.That was enough to officially end a grinding 18-month downturn...
Tuesday, 26 January 2010 07:14 AM
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