British economic recovery seen struggling amid budget cuts

12th July 2010, Comments 0 comments

Britain pushed away from recession with 0.3-percent growth in the first quarter, but is climbing out of a deeper hole than thought and faces a struggle against budget cuts, new data suggests.

Official figures on Monday stood by previous estimates that the economy grew by 0.3 percent in the first three months of the year, building on slight emergence from recession at the end of last year.

But they also showed that the recession, known to have been a record in terms of duration, had been even deeper than calculated previously.

Economists warned that weak 0.3-percent growth in the three months to March was barely enough to keep up momentum against draconian cuts in public spending by Britain's coalition government.

The recession, which began in the second quarter of 2008 and ended in the third quarter of 2009, slashed 6.4 percent from British economic output, the Office for National Statistics (ONS) said in a statement.

That was sharper than the previous estimate of a dramatic 6.2-percent contraction in gross domestic product (GDP).

The economy had clawed its way out of recession in the fourth quarter of 2009, and expanded by 0.3 percent in the first three months of 2010, unchanged from the previous estimate, the ONS added.

"The first quarter's delayed national accounts show that the recovery is still estimated to have got off to a fairly slow start at the beginning of the year, with the quarterly rise in GDP left unrevised at 0.3 percent," said Capital Economics analyst Vicky Redwood.

She added: "Overall ... we still doubt that the economy is in a good position to withstand the fiscal squeeze."

The downbeat data pushed the London stock market lower while the pound dipped against the dollar.

Following the data, the FTSE 100 index of leading shares sank 0.40 percent while sterling slid to 1.4944 dollars.

"The picture remains one of only gradual recovery so far following a record six quarters of deep overall recession through to the third quarter of 2009," noted IHS Global Insight economist Howard Archer.

"The main message coming from the revised data was that the recession was even deeper than previously reported with GDP falling by 6.4 percent from peak to trough, rather than by 6.2 percent."

He added that the economy would face a bumpy ride over the coming months owing to the combined impact of fiscal tightening, the eurozone debt crisis and weak consumer spending.

"We suspect growth will be both bumpy and gradual over the coming months in the face of serious headwinds, including major fiscal tightening increasingly starting to impact, the problems in the eurozone and serious constraints on consumers," Archer warned.

Britain's fiscal watchdog, the Office for Budget Responsibility, forecast last month that GDP would grow by 1.2 percent this year and 2.3 percent in 2011, following the coalition government's deficit-slashing emergency budget.

Last week, meanwhile, the International Monetary Fund cut its growth forecasts for Britain.

The IMF forecast that GDP will grow by 1.2 percent this year, followed by 2.1 percent in 2011. The new forecasts compared with the previous estimates for expansion of 1.3 percent and 2.5 percent respectively.

Monday's third and final reading of first-quarter GDP had been due for publication in late June, but was delayed by two weeks owing to possible errors.

The ONS made a series of other revisions, adding that British economy shrank by 0.1 percent in 2008 and by 4.9 percent in 2009.

© 2010 AFP

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