Britain dodges recession as economy grew in Q1

  • Article by: DANICA KIRKA
  • Associated Press
  • April 25, 2013 - 9:44 AM

LONDON - Britain has given the slip to the Triple Dip.

The U.K. dodged a third recession after official figures showed the economy grew 0.3 percent in the first quarter compared with the previous three months — a better-than-expected result that offered a bit of breathing space to a government facing criticism for its tough austerity policies.

The figure released Thursday by the Office for National Statistics was above analyst forecasts for 0.1 percent growth and allowed the country to avoid a so-called "Triple Dip" — a third recession since the 2008 economic crisis.

The pound jumped higher in currency markets on expectations that the figures will dissuade the Bank of England from increasing its monetary stimulus program. The pound was up 1.1 percent against the dollar, at $1.5443.

"The likelihood of policy action by the Bank of England has fallen significantly with this better than expected outcome," said Chris Williamson, an analyst with Markit.

In its stimulus program, the Bank of England increases the amount of money in the U.K. financial system, in the hopes of spurring lending and growth.

Williamson noted, however, that Thursday's figures hardly indicate a strong rebound has begun.

"The fact that the economy has more or less stagnated over the past 18 months suggests that the return to growth will do little to alleviate pressure on the government and the Bank of England to find ways to ensure the latest upturn turns into a sustainable and robust recovery, and that the economy does not falter once again."

A recession is typically defined as two quarters of economic contraction. The economy shrank in the fourth quarter of 2012. The figures show the economy grew at an annualized rate of about 1.2 percent.

Observers had feared that news of another recession would scare consumers, feeding into a vicious cycle of cutting back on spending that has the economy flat-lining.

Britain's government desperately wanted a robust number to justify its austerity policies, and seemed at least pleasantly surprised.

"Today's figures are an encouraging sign the economy is healing. Despite a tough economic backdrop, we are making progress," Treasury chief George Osborne said. "We all know there are no easy answers to problems built up over many years, and I can't promise the road ahead will always be smooth, but by continuing to confront our problems head on, Britain is recovering and we are building an economy fit for the future."

The positive result — however small — can only offer a boost to the confidence of small and medium sized business, seen by many observers see as critical to reviving the moribund economy.

Stephen Pegge, a director for SME markets at Lloyds Banking Group, which makes loans to small and medium-sized businesses, said that the number of startups is rising, which is consistent with growth.

"Many businesses will feel more upbeat about the future as a result of today's figures," he said in an email. "My hope is that this optimism will stick and that businesses will be encouraged to borrow and invest for growth. Investment after all, is the only way to ensure growth is sustained."

The opposition Labour Party has pressured Osborne to ease off on budget cuts designed to reduce the deficit, which stands at 7.4 percent of annual GDP.

The International Monetary Fund has signaled it will judge Britain closely at an upcoming review and has suggested that the government might want to reconsider the pace of its austerity measures to help the economy, whose output was worth 1.4 trillion pounds ($2.1 trillion) in 2012.

A closer look at Thursday's figures showed the services sector contributed most of the growth in the first quarter but industrial production also helped. A sharp drop in construction offset some of those gains, though.

Other economic indicators also remain weak. Inflation is rising faster than wages, meaning living standards are slipping, and unemployment is high at 7.9 percent.

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