Business World

Monday 19 March 2018

UK economy slowly resumes growth

Scott Hamilton

The UK economy resumed growth by less than economists forecast in the fourth quarter as service industries and manufacturing expanded enough to pull Britain out of its longest recession on record.

Gross domestic product rose 0.1pc from the third quarter, the Office for National Statistics said today in London.

The median forecast in a Bloomberg News survey of 33 economists was for a 0.4pc increase and the lowest prediction was for a result of 0.2pc.

Bank of England policy makers will study the data as they assess the strength of the recovery and decide next week whether to halt bond purchases and prepare to withdraw emergency stimulus measures.

The weakness of the pickup may hamper Prime Minister Gordon Brown’s efforts to win an election by June as he campaigns on his plans to curb the budget deficit.

“We should be thankful that we have finally left recession, but we cannot be at all be confident how strong growth will be this year,” Brian Hilliard, a London-based economist at Societe Generale SA and a former Bank of England official, said in a telephone interview before the announcement.

“It’s going to be very challenging. The main areas of that are the expectation of fiscal tightening and the election,” he said.

The pound fell as much as 0.4pc after the release and traded at $1.6165 as of 9:32am in London. The yield on the two-year government bond was down 1 basis point at 1.207pc.

The recession, which lasted for six consecutive quarters, has shaved 6pc off GDP, the statistics office said. The economy shrank 4.8pc in 2009, the biggest annual drop since records began in 1949, officials said.

Annual drop

The economy contracted 3.2pc from a year earlier in the fourth quarter, compared with a median decline of 3pc forecast in a Bloomberg News survey of 30 economists.

The data, the first for the fourth quarter from a Group of Seven nation, means Britain is the last of them to exit the recession sparked by the worst financial crisis since the Great Depression.

Gordon Brown said yesterday that he is confident the UK is emerging from recession, though the economy “remains fragile” and the biggest mistake Britain could make would be to withdraw economic stimulus measures too early.

Brown and Conservative leader David Cameron are battling to convince voters they are best placed to cut the ballooning budget deficit without hurting the economic recovery.

Services, which make up 76pc of GDP, expanded 0.1pc on the quarter. Industrial production grew 0.1pc and within that, manufacturing rose 0.4pc, the statistics office said. Construction output stayed unchanged from the previous three months.

Bank of England Governor Mervyn King said last week the UK faces “a long period of healing” as “at this very early stage of the recovery, it is particularly difficult to judge the medium-term prospects for the economy.” Policy makers will decide next week whether to halt bond purchases after buying £200bn (€229bn) so far.


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