British economy returns to growth in first quarter

27th April 2011, Comments 0 comments

The British economy returned to growth in the first quarter of 2011, official data showed on Wednesday, rebounding in line with market expectations, but economists warned that the outlook was weak.

Gross domestic product (GDP) -- the total value of the goods and services produced in the economy -- increased by 0.5 percent in the first three months of 2011, the Office for National Statistics (ONS) said in statement.

The economy rebounded after a sharp and unexpected slump of 0.5 percent in the final three months of last year.

The ONS warned that growth was broadly unchanged from the third quarter of 2010, after freezing weather conditions last December had taken an estimated 0.5 percentage points from GDP in the fourth quarter.

"The figures suggest that underlying activity in the economy remains pretty much stagnant," said Capital Economics economist Vicky Redwood in response to the data.

Analysts argued that the modest recovery was not yet strong enough to persuade the Bank of England to lift interest rates to combat high inflation, amid concern over the impact of deep state spending cuts and high fuel prices.

"The 0.5-percent gain was in line with consensus, but the increase offset the 0.5-percent decline in the fourth quarter -- so GDP was flat in the last 6 months," VTB Capital economist Neil MacKinnon told AFP.

Between January and March, meanwhile, economic output was 1.8 percent higher compared with the first quarter of 2010.

"My view is that economic recovery this year is unlikely to be strong enough to warrant a tightening in monetary policy -- the fiscal squeeze and the impact of higher energy prices will act as strong headwinds," added MacKinnon.

And IHS Global Insight economist Howard Archer described the first-quarter data release as "disappointing".

"This is a pretty disappointing performance, which points to the economy being only stagnant overall during the past two quarters."

He added: "This fuels concern over the underlying strength of the economy and its ability to withstand the fiscal squeeze."

The Bank of England voted earlier this month to keep its key interest rate at a record low level of 0.50 percent, as weak growth offset rising inflation worries.

Recent data showed that Britaish annual inflation unexpectedly fell to 4.0 percent in March from 4.4 percent in February, easing pressure on the BoE to follow the European Central Bank in raising rates to combat high prices.

© 2011 AFP

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