UK (finally) exits recession
Official figures show that the UK is no longer in recession, with the economy growing by 0.1% in the last three months of 2009.
The UK had been one of the last major economies to remain in recession, with the likes of Germany and France exiting last summer.
Plunged into recession in the second quarter of 2008 (April to June), the UK has suffered six consecutive quarters of economic contraction and a 6% drop in economic output.
Despite the fact that the UK emerged from the recession at the end of last year, economists were expecting a 0.4% gain in economy.
Jonathan Loynes, chief European economist at Capital Economics, describes the figures are a "major blow" to hopes that the UK economy had emerged decisively from recession.
"The disappointment came mainly in the services sector, which grew by just 0.1% rather than the 0.5% or 0.6% rise suggested by the business surveys," he adds.
Although the figures could be an under-estimation and might be revised up down the line, Loynes says the economy is still operating way below both its pre-recession and trend levels of output.
"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 explains.
The latest figure show the economy declined by 4.8% for 2009 - again a weaker picture than had been expected.
Douglas McWilliams, economist at the Centre for Economic Business Research, says the weak recovery suggests the official interest rate will remain low for some time - and the Bank of England may also expand its quantitative easing scheme after the election.
"We expect sluggish growth over the coming years and if the statistics had been measured correctly there might have been a risk of the economy falling back in quarter one," he adds. "Official data will [probably] continue to show rising growth during 2010, if at very slow rates."
Lower interest rates encourage people to spend, not save. But when interest rates can go no lower and there is a sharp drop in consumer and business spending, a central bank’s only option to stimulate demand is to pump money into the economy directly. This is quantitative easing. The Bank of England purchases assets (usually government bonds, or gilts) from private sector businesses such as insurance companies, banks and pension funds financed by new money the Bank creates electronically (it doesn’t physically print the banknotes). The sellers use the money to switch into other assets, such as shares or corporate bonds or else use it to lend to consumers and businesses, which pushes up demand and stimulates the economy.