Is the recession over?

25 January 2010

Figures due to be released later today are expected to show that the UK is finally pulling out of recession - albeit slowly.

After a false start last quarter (when predictions of an end to the recession were dashed by a 0.2% fall in economic output) the data out today (Tuesday 26 January) is forecast to show growth of 0.4% between the end of September and end of December 2009.

The rise would be the first for 18 months.

Howard Archer, chief European and UK Economist at IHS Global Insight, says all the evidence points to economic growth in the fourth quarter of 2009.

He explains: "Output in the services sector expanded for a second month running in October, while business activity index of the purchasing managers' survey for the services sector averaged 56.9 for the fourth quarter.

"While this survey appears to have been overstating the strength of the services sector in recent months, it is nevertheless the highest quarterly average since the third quarter of 2007 and substantially above the 50.0 level that is supposed to indicate unchanged activity."

In addition, Archer points out industrial production expanded by 0.4% month-on-month in November: "Even flat output in December would result in growth of 0.2% quarter-on-quarter in the fourth quarter."

But Douglas Roberts, senior international economist at Standard Life, says the return to economic growth will be slow.

"When you look at the peak of 6.1% we are still a long way off," he adds. "The economy is still very fragile. Overall, the economy contracted 5% in 2009."

Other data that could back up analysts' predictions include a 58.5% year-on-year increase in motor manufacturing, according to the Society of Motor Manufacturers and Traders, as well as a 0.2% quarter-on-quarter increase in industrial production.

Reports from the Confederation of British Industry would also suggest that exports rose, lifted by the weak pound and demand in overseas markets. However, this might be offset by increased imports, partly resulting from foreign cars bought under the scrappage scheme.

Not all analysts are agreed on a rise, though.

Duncan Higgins, senior analyst at Caxton FX, argues that last week's disappointing retail sales should serve as a reminder that nothing is a given when it comes to confidence in the UK's recovery.

"Forecasts suggest that the UK economy grew by 0.4% in the three months through December, but there could now be considerable downside risk to that estimate," Higgins says. "Should growth figures disappoint, the risk of a further extension to quantitative easing will certainly increase."

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