Britain’s economy avoided a triple- dip recession in the first quarter with expansion that exceeded economists’ forecasts and will provide welcome relief to a government under fire for failing to foster a recovery.
Gross domestic product rose 0.3 per cent in the period, the Office for National Statistics said today in London. From a year earlier, GDP rose 0.6 per cent, the most since the fourth quarter of 2011. The pound surged.
Chancellor of the exchequer George Osborne's austerity plan has come under fire after Fitch Ratings downgraded the UK last week and the International Monetary Fund said the government should relax fiscal tightening to foster growth.
Yesterday the Treasury and the Bank of England extended their credit-boosting program as they warned that risks of renewed stresses in bank funding markets remain because of the euro-area crisis.
“The Funding for Lending extension is relatively positive. It will limit damage, but it won‘t drive the economy toward strong growth,“ said Joost Beaumont, an economist at ABN Amro Holding NV in Amsterdam.
“The external picture has worsened and domestically you still have the factors that have been at play for a while, high inflation, austerity, tight credit conditions.”
Services rose 0.6 per cent in the fourth quarter from the previous three months, boosted by distribution, hotels and restaurants. Production increased 0.2 per cent, led by a 3.2 per cent surge in mining and quarrying, while construction dropped 2.5 per cent.
Weather Impact
The pound soared against the dollar after the data were published, rising at least 0.7 per cent. Sterling traded at $1.5412 as of 9.33 am London time, up 0.9 per cent from yesterday. Gilts declined, pushing the 10-year yield up 3 basis points to 1.72 per cent.
The statistics office said that snowfall and cold weather during the first quarter appear to have had a “limited impact“ on GDP. “The strongest evidence was that it reduced retail output in January and March 2013, but boosted demand for electricity and gas,“ it said.
Today‘s report is a preliminary estimate and based on about 44 per cent of the data that will ultimately be available. Only one bank, Landesbank Baden-Wuerttemberg, correctly predicted the 0.3 per cent first-quarter expansion. Six of the 37 economists surveyed predicted a contraction.
Below Peak
While the US, German and Canadian economies are back above their pre-recession levels, UK GDP remains 2.6 per cent below its peak in the first quarter of 2008.
It means Britain remains mired in its longest peacetime slump of any since at least 1920, according to the National Institute of Economic and Social Research.
The economy has grown 1.2 per cent since the third quarter of 2010, just after the Conservative-Liberal Democrat coalition came to power in May of that year.
Recovery prospects are poor, with the debt crisis in the euro area sapping demand in the biggest market for British goods while inflation running at 2.8 per cent eats into household incomes.
The 17-nation euro region shrank 0.1 per cent in the first quarter, according to a Bloomberg survey published on April 11th. The official figures will be released on May 15th.
