British economy crawls out of recession, with bare 0.1 percent growth in last quarter of 2009

Recession over, barely: UK grows 0.1 pct in Q4

LONDON — Britain’s worst recession since World War II is officially over — but a less than convincing return to growth leaves British Prime Minister Gordon Brown’s Labour Party on shaky ground ahead of a general election.

Britain is already the last major economy to return to growth after the global credit squeeze, and economists warned of a bumpy road ahead after the Office for National Statistics reported Tuesday that gross domestic product rose a feeble 0.1 percent in the final quarter of 2009.

That first estimate on fourth-quarter growth was enough to officially end a grinding 18-month recession during which 1.3 million people lost their jobs, but fell short of expectations of a stronger 0.3 to 0.4 percent rise.

Over 2009 as a whole, the economy shrank by 4.8 percent, the worst yearly performance since records began in 1949.

The statistics office also acknowledged the possibility that the data could be revised downward in a planned second estimate and third final figure — although an upward change is more likely — which could negate the recession exit.

Even without that, Tuesday’s announcement is unlikely to convince voters that Brown’s Labour Party has a strong grip on the economy. An election must be held by the start of June.

The British pound dropped and gilt futures rose, factoring in the likelihood that the Bank of England will keep interest rates at record lows for some months and possibly extend its 200 billion pound ($325 billion) asset purchasing program to boost the money supply.

Treasury chief Alistair Darling has been saying for weeks that the British economy had started growing by the end of 2009 and, while he’s been proved right, it was only by the skin of his teeth.

“Far from the quick recovery the chancellor has been praying for, the economy is only just staggering back into growth,” said Vince Cable, the economy spokesman for the opposition Liberal Democrat party. “The British economy has had the economic equivalent of a heart attack and is still very weak.”

Economists now expect Britain to struggle to reach 1 percent growth this year, a sharp contrast to new forecasts from the International Monetary Fund on Tuesday of world economic growth of 4 percent and U.S. growth of 2.7 percent.

Darling said “there is still a lot of uncertainty round the world” and more work to be done in Britain to aid recovery.

“Of course there will be further bumps along the road. Be in no doubt about that,” Darling said after the release of the data, which was so keenly anticipated that the usually media-shy statistics office held a rare televised press conference to announce the figure.

“But I am confident that as long as we stick to the path that we have set … that we are going to see recovery through that back into growth,” he added.

Darling also seized the moment to bolster the government’s position that it’s too early to trim spending to get the country’s ballooning budget deficit back under control. That’s a key area of disagreement with the main opposition Conservative Party, which, currently well ahead in opinion polls, wants to curb spending much quicker to get a handle on the deficit.

But his cautious optimism wasn’t shared by many voters at the sharp end of the downturn.

“I don’t think we are out of a recession,” said Kim Jamilly, 53, a London shop owner. “Look at the queues for social benefits, the rate of poverty, people in need of food and clothing.”

Britain 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 5.9 percent from peak to trough. 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.

The statistics office’s chief economist, Joe 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.

But 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 and the revival of exports.

Grice said 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.

“We don’t know on the evidence we have,” he told reporters, noting his job was to analyze 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.

Capital Economics economist Jonathan 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.

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Associated Press Writer Chelsea Arnold contributed to this story.