UK avoids triple-dip recession

8 May 2013

The figure means the economy avoided two consecutive quarters of contraction - the definition of a recession. The rise was also better than the 0.1% increase expected by consensus.

The dominant services sector was the economy's saviour in the first quarter, with surprisingly decent growth of 0.6% quarter-on-quarter. Industrial production edged up by 0.2% quarter-on-quarter, while construction output fell by 2.5%.

The avoidance of a triple-dip recession will come as a relief for Chancellor George Osborne, who was recently told by the International Monetary Fund that a change of course on his austerity plans may be necessary.

"Clutching at straws"

"Of course, in any normal recovery, a 0.3% expansion would be considered quite feeble, particularly after a similar-sized fall in the previous quarter," scoffed Vicky Redwood, chief UK economist at Capital Economics. "And the big picture is that output is still about 3% below its pre-recession peak."

Howard Archer, chief UK and European economist at IHS Global Insight, echoed this view: "While GDP [gross domestic product] growth of 0.3% quarter-on-quarter is a cause for minor celebration, it does not fundamentally alter the picture of an economy that is struggling to develop even moderate, sustainable expansion.

"This is highlighted by the fact that GDP was still only up 0.6% year-on-year in the first quarter and it is still 2.6% below the peak level seen in the first quarter of 2008."

Marcus Bullus, trading director at MB Capital, stressed: "Just because we've dodged the triple-dip does not mean we're back in business.

"The fact we're celebrating 0.3% growth says it all. We're clutching at straws."

"Limited" growth for 2013

Looking ahead, Archer expected the economy to scratch out "limited" growth over the rest of the year, with GDP expansion limited to 0.8% during 2013.

He warned: "Even this muted growth performance is vulnerable to events in the eurozone and slowing global growth, and it could also be pressurised if the labour market falters markedly."

Redwood added: "What's more, the recovery still faces significant obstacles ahead, with households still experiencing falling real pay and policymakers still struggling to get bank lending to rise.

However, on the positive side, Archer pointed out growth could come in modestly higher than expected if recent markedly lower oil and commodity prices were sustained, and this contained inflation over the coming months, thereby limiting the squeeze on consumers' purchasing power.

"It would also help [companies'] margins and therefore be helpful to their investment and employment decisions," he stated.

This article was written for our sister website Interactive Investor

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