UK economy grows 0.2% in first quarter

UK economy grows 0.2% in first quarter
By Chris Giles, Economics Editor
Copyright The Financial Times Limited 2010
Published: April 23 2010 10:18 | Last updated: April 23 2010 10:18
http://www.ft.com/cms/s/0/40327922-4eb3-11df-abb5-00144feab49a.html


Britain’s economy grew in the first quarter of the year in spite of severe winter weather and tax rises, diminishing the prospect of a double-dip recession.

Official figures on Friday showed that the economy was 0.2 per cent larger between January and March than in the previous three months.

The growth was a touch lower than the 0.4 per cent expected by economists, and was in a range that will enable all political parties to claim it vindicates their economic positions.

Labour and the Liberal Democrats will claim that the low rate of growth – well below Britain’s normal quarterly rate of 0.6 per cent – shows that the recovery remains fragile. The figures are consistent with the economy growing in line with the Budget forecast of 1-1.5 per cent, and centre-left politicians will claim that the further fiscal tightening this year advocated by the Conservatives threatens to undermine the recovery.

Gordon Brown said the figures showed “the recovery is definitely underway”. But he said they showed the recovery was still fragile and the Conservative party’s planned spending cuts for 2010-11 were dangerous. “If they do it in the June emergency Budget they propose, the risk of recession looms over the economy,” he added

The Conservatives, meanwhile, claimed that the relative weakness in the economy demonstrated Labour’s failure in government. George Osborne, shadow chancellor said Britain needed a strong government and no further tax rises.

“What Britain doesn’t need now is a jobs tax that would kill the recovery or a hung parliament that would lead to economic paralysis,” he said. “What we need is a new government ready to take decisive action to stop the jobs tax, deal with our debts and get the economy working for everyone.”

In many respects, the figures showed that the economy could still grow at a time of rising taxes, although the parts of the economy most affected by the rise in value added tax to 17.5 per cent were the weakest.

Distribution, hotels and restaurant – some 15 per cent of the economy, which includes retailing – had a bad quarter with output falling 0.7 per cent. This followed a very strong showing in the fourth quarter of last year as shoppers rushed to beat the rise in VAT.

Business services and manufacturing contributed most to growth, more than offsetting the weakness in retailing. Because government services were flat during the quarter, the private sector grew slightly faster than 0.2 per cent.

Lee Hopley, chief economists of the EEF manufacturers’ organisation, said: “Despite a rocky start to the year, the economy now seems to have turned a corner with an albeit modest expansion in the first quarter. Manufacturing continues to play a more substantial role in the recovery with output up more than 1 per cent on a year ago.”

The figures suggest Britain’s economy is on the road to recovery and, without the same fiscal tightening or severe weather in future quarters, economists expect the growth rate to rise.

Preliminary figures have a tendency to be revised higher in the months and years after their publication. This suggests it is likely that the true growth rate in the first quarter of the year is higher than 0.2 per cent.