UK economy emerges from recession…just

Hearing that the economy has grown will have sent a warm rush of blood through millions of people in the UK, especially those in the building services industry. However, much like our weather, the economy can have a mind of its own and it has been made clear that the road to significant economic growth will be a bumpy one.

Britain emerged today from the longest recession in modern history, but the economy grew by only 0.1 per cent between October and December — far below expectations of a 0.4 per cent rebound.

The data brings to an end the UK’s longest-ever recession, but the minuscule size of the rise – lower than the 0.4 per cent predicted – will raise fears the country could slip back into a ‘double dip’ recession and heap further pressure on Gordon Brown.
The economy had previously contracted for six consecutive quarters – the longest period since quarterly figures were first recorded in 1955. There have been recent recovery signs – last week, UK unemployment fell for the first time in 18 months.

Britain is the last big economy to emerge from a full-blown downturn. The United States, Japan, China, Germany and France all climbed out of recession in the third quarter, between July and September, last year.

The main drivers of the minimal growth in the economy came from the retail and motor sector, both of which have been propped up by Government intervention.

Colin Ellis, European economist with Daiwa Capital Markets, said: “These sectors will have been boosted by the pre-announced VAT rise in January, and the car scrappage scheme — suggesting that, on an underlying basis, the economy only stagnated at best.”

It has raised fears over the strength of the recovery as the VAT rise coupled with the dire weather this month are likely to have hurt high street spending, and the scrappage scheme is scheduled to come to an end soon.

In 2009 the economy fell by 4.8 per cent, the fastest pace of decline in a single year for 88 years, and more than in any other 12-month period since the Great Depression of the 1930s. Britain has been in recession for six quarters. The technical definition of a recession is two consecutive quarters of negative growth.

The International Monetary Fund (IMF) today revised up its figure for British GDP growth from 0.9 per cent to 1.3 per cent for 2010, in line with the Treasury’s own forecast for 1.25 per cent growth this year.

However, it places the UK among the stragglers in the world economy, with the US expected to grow by 2.7 per cent and Japan tipped to expand by 1.7 per cent. French and German GDP will rise by 1.4 per cent and 1.5 per cent respectively in 2010, the IMF forecasts.

There is a rosier picture in 2011, with the IMF predicting that the UK economy will grow by 2.7 per cent, up from a previous forecast of 2.5 per cent. But this falls far below the Treasury’s forecast for 3.5 per cent growth, which has already attracted criticism from economists for being too optimistic.

Howard Archer, the chief European and UK economist for IHS Global Insight, said: “This is another desperately disappointing GDP release. While the UK officially exited recession in the fourth quarter of 2009, it could only crawl out.

“This reinforces our suspicion that recovery will be gradual and prone to losses of momentum.” It also added to the likelihood that the Bank of England would keep interest rates at an historic low of 0.5 per cent, at least until late this year.

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