UK economic recovery sustained in first quarter of 2010 …just

The UK’s emergence from the 2008/2009 recession appears to be on a very slightly surer footing for now, following the publication today (Friday 23 April 2010) of latest official estimates on economic growth (PDF format, 170.4K) (external website). These show that the economy failed to dip back into negative growth, although the rate of growth achieved was by no means spectacular. Gross domestic product (GDP) rose by 0.2 percentage points in the first quarter of 2010 when compared with the previous quarter.

This represents a slowdown of 0.2 percentage points from the estimated rate of GDP growth for the preceding quarter (the fourth quarter of 2009), which ran at 0.4%. It is likely that the figure for the first quarter of 2010 will be subject to revisions as additional data are collected.

CBI (external website) chief economic advisor Ian McCafferty comments:

The UK economy continued to expand over the first quarter of this year, but growth was slower, much as we expected. With the end of the VAT cut and the car scrappage scheme, weaker spending within the motor vehicles, retail and wholesale sectors came as no surprise.

It is too early to tell whether this preliminary estimate will ultimately prove consistent with Chancellor Alistair Darling’s projections in the Budget 2010 for UK GDP growth between 1% and 1.5% for 2010. The possibility remains that the UK economy could slip back into negative growth in the near term.

However, two recent surveys argue that underlying conditions for UK economic growth appear reasonably strong:

  • The UK economy is set to outperform all but one of its fellow G7 nations in the second quarter of 2010 (PDF format, 1.1MB) (external website), according to research from the Organisation for Economic Cooperation and Development (OECD). It forecasts UK GDP growth consistent with an annualised rate of 3.1% for the second quarter of 2010. This is behind Canada (with an annualised rate of 4.5%), but ahead of Germany (2.8%), US and Japan (2.3% each), France (1.7%) and Italy (0.5%).
  • Business confidence and output have rebounded to levels last seen before the recession (external website), according to the Business Trends survey from accountants BDO. But the report warns that current rising output is a result of companies restocking after letting stock levels dwindle during the recession. It will therefore provide only a short-term boost for economic growth. BDO partner Alex White comments: “The economy is showing signs of improvement, but the main political parties risk frittering this opportunity away if they don’t provide clarity for businesses now. Political parties are keeping businesses in the dark on the substantive impact of their policies [...] uncertainty created here is an enemy to investment.”

Ironically, the UK economy’s sustained return to growth in the first quarter of 2010 could further complicate the economic challenges facing the next Government. With the recession over and positive growth apparently set to continue on a reasonably sure footing, the inevitable austerity measures that will be enacted in the new parliament may seem unnecessary to some parts of the electorate.

The risk also remains that if they are not correctly judged, these austerity measures could endanger further economic growth.

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