UK recession ends as economy limps back to growth of 0.1%

BRITAIN’S LONGEST recession since the second World War has ended, according to official figures released yesterday.

But it has limped back to economic growth and fears remain that higher VAT rates introduced since January 1st could see the economy dip again in coming months.

Producing its quarterly figures, the Office for National Statistics said the British economy grew by 0.1 per cent between October and November – below the 0.4 per cent expectations of many economists.

Head of the ONS Joe Grice emphasised that the latest figures could be revised upwards once final calculations are completed in the coming months.

However paltry, the return to growth after 18 months of falling numbers is a boost for Prime Minister Gordon Brown, though the next round of statistics due on April 23rd – right in the middle of the election campaign, if current predictions that it will be held on May 6th are proven correct – may critically influence voters when they go to the polls.

The weak return to growth was taken as a disappointment by the markets, and saw sterling, which has strengthened in the last number of weeks against both the dollar and the euro, fall sharply yesterday.

That is a trend that may continue given the difficulties that lie ahead for the UK in coping with its near-trillion-pound national debt and £180 billion (€206 billion) deficit for this year alone.

The Bank of England is now expected to keep interest rates at 300-year lows for some time to come, though its decision to end its purchase of government bonds – so-called quantitative easing – may threaten economic activity in coming months. The health of the economy will also be affected by the December and January snows which hurt many businesses.

The scale of the challenge facing Bank of England governor Mervyn King, who also faces rising inflation figures, will become clearer once he knows exactly what spending cuts will be made by the next British government. UK growth for 2010 as a whole is expected to reach 1.4 per cent, economists believe.

Last year, the British economy shrank by 4.8 per cent – the sharpest fall since 1931. However, while the British recession was the longest of any of the major world economies, it was not the deepest: the Japanese economy contracted by 8.6 per cent, Germany’s by 6.7 per cent and Italy’s by 6.5 per cent.

In all, the Confederation of British Industry now argues that the UK is 10 per cent poorer.

However, the figures are being taken in some quarters as an indication that the UK will not suffer a double-dip recession, though that remains a possibility. Schroders economist Azad Zangana said: “It will be at least three years before the UK’s output is anything like it was in 2007, but we do believe GDP figures will continue to show positive growth throughout the rest of the year.”