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Britain Avoids Triple-Dip Recession Weak Growth, but Britain Avoids Triple-Dip Recession
(about 14 hours later)
LONDON — Britain’s economy avoided entering an unprecedented — and politically damaging — third recession in five years, according to official estimates released Thursday.LONDON — Britain’s economy avoided entering an unprecedented — and politically damaging — third recession in five years, according to official estimates released Thursday.
During the first quarter of this year the country recorded an increase of three-tenths of a percent in gross domestic product, compared with the previous three-month period when it contracted by a similar amount, the Office for National Statistics said. Gross domestic product had been broadly flat over the last 18 months, the agency added. Although the data were hardly robust, and were still subject to revision, for now the indication that Britain’s economy eked out growth of three-tenths of one percent in the first quarter relieved some of the pressure on architects of the country’s austerity drive.
The British economy managed some growth despite continued weakness in the construction sector, which shrank by 2.5 percent, and despite the cold weather early in the year that some analysts feared would hurt economic activity. A triple-dip recession would have been a psychological jolt to consumers and raised more questions about the government’s strict deficit-reduction program at a time when bad economic news has been piling up in Britain, and while policy makers all around Europe are starting to focus more on the need for growth.
Though the estimates paint a picture of a flat economy, they are slightly better than most analysts expected and will be a relief for the chancellor of the Exchequer, George Osborne. Instead, although the economy has been broadly flat for the past 18 months, Britain’s chancellor of the exchequer, George Osborne, was able to argue on Thursday that there were reasons to be encouraged by the small uptick in the country’s gross domestic product.
The rise in G.D.P. was in comparison to the previous three-month period, when the economy contracted by the same amount, the Office for National Statistics said. Two consecutive quarters of contraction constitute a recession.
The British economy managed some growth despite continued weakness in the construction sector, which shrank by 2.5 percent, and despite cold weather early in the year that some analysts feared would hurt economic activity.
Anemic as the growth might be, they were slightly better than most analysts predicted.
“Today’s figures are an encouraging sign the economy is healing,” Mr. Osborne said in a statement. “Despite a tough economic backdrop, we are making progress.”“Today’s figures are an encouraging sign the economy is healing,” Mr. Osborne said in a statement. “Despite a tough economic backdrop, we are making progress.”
A triple-dip recession would have raised more questions about his austerity policies at a time when bad economic news has been piling up. Analysts cautioned that estimates of the type published Thursday are often revised, as more data comes available, and so the final figures could be lower.
Last week, the International Monetary Fund raised doubts about the fast pace of Mr. Osborne’s deficit-reduction strategy and Fitch became the second credit rating agency to downgrade Britain from its prized triple-A status. Employment figures, which had been one of the rare spots of good news for Mr. Osborne, also turned sour, with a jump of 70,000 in joblessness in the three months to the end of February. “While preliminary estimates of G.D.P. growth need to be treated with a degree of caution, the breakdown of this release, if taken at face value, is a welcome surprise,” James Ashley, Senior Economist, RBC Capital Markets wrote in a commentary Thursday.
Mr. Osborne has already had to slow his deficit reduction plans, and a triple dip would have increased political pressure on him to slow even further. Although a member of the European Union, Britain uses the pound and not the euro. That gives it the advantage of having a floating currency, which has dropped in value against the euro this year. While that has helped keep its exports relatively more competitive on global markets, Britain is still some way from having a convincing recovery.
A recession is normally defined as two consecutive quarters of economic contraction. The British statistical agency said that prospect was averted mainly by an increase in output from service industries, which grew by 0.6 percent. Mining and quarrying increased by 3.2 percent; construction was down 2.5 percent. The data also highlighted the extent to which the country remained dependent on its large service sector, despite government efforts to rebalance the economy and to promote manufacturing.
The Office for National Statistics said snowfall and cold weather in the early part of the year “appears to have had a limited impact on G.D.P. growth.” Business services and finance together account for around 29 percent of British G.D.P. They contributed 0.1 percent to the 0.6 percent increase from the services sector.
“The strongest evidence was that it reduced retail output in January and March 2013 but boosted demand for electricity and gas in February and March, which increased output in the energy supply industries,” it said. Mining and quarrying, though a smaller part of the overall economy, increased by 3.2 percent.
Nawaz Ali, a market analyst covering Britain for Western Union Business Solutions, said the “surprising and bullish outcome from today’s G.D.P. data has sent the pound soaring in currency markets this morning.” Construction was down 2.5 percent.
“Doubts about the British economy’s performance over the coming quarters will remain,” he added. “However, the positive figures end the triple-dip threat and will certainly ease pressure on the Bank of England to shift course on quantitative easing, which has been a big worry for currency investors.” “Doubts about the British economy’s performance over the coming quarters will remain,” said Nawaz Ali, a market analyst covering Britain for Western Union Business Solutions.
Though it makes little difference economically whether or not the threshold was crossed, headlines referring to recession could have a psychological impact on consumers, making them even less willing to spend. “However, the positive figures end the triple-dip threat and will certainly ease pressure on the Bank of England to shift course on quantitative easing, which has been a big worry for currency investors.”
Across Europe the debate is growing about the wisdom of tough austerity policies and whether they are trapping economies in a cycle of stagnant growth, reduced tax receipts and higher debt. Quantitative easing refers to moves by the central bank to pump more money into the economy, mostly by buying up government debt on the open market. The Bank of England has pursued such a course, even if critics have said the amounts spent have had little stimulative effect.
In Britain the opposition Labour Party has been calling on the coalition government of Conservatives and Liberal Democrats to change course. Ahead of the announcement of the data, Chris Leslie, a Labour member of Parliament who is its spokesman on the economy, argued that even a small increase in growth would be insufficient. But the bigger debate across Europe is about the wisdom of tough austerity policies of the sort Mr. Osborne has pursued, and whether they are trapping economies in a cycle of stagnant growth, reduced tax receipts and higher debt. This week, José Manuel Barroso, president of the European Commission, said Europe may have hit the political limit of austerity-driven policies because of growing public opposition.
“Growth of just 0.3 percent would simply mean the economy is back to where it was six months ago,” he said in a statement. “This isn’t good enough. After nearly three years of flat-lining we need to see decisive evidence that a strong and sustained recovery is finally under way.” Last week, the International Monetary Fund raised doubts about the pace of Mr. Osborne’s deficit-reduction strategy and Fitch became the second credit rating agency, after Moody’s, to downgrade Britain from its prized triple-A status.
Employment figures, which had been one of the rare spots of good news for Mr. Osborne, also turned sour, with a jump of 70,000 in joblessness in the three months to the end of February.
Mr. Osborne has already had to slow his deficit reduction plans. But the opposition Labour Party has been calling on the coalition government led by the Conservative prime minister, David Cameron, to go further and change course.
“These lackluster figures show our economy is only just back to where it was six months ago and continue the picture of flat-lining,” Ed Balls, Labour’s finance spokesman, said in a statement. “David Cameron and George Osborne have now given us the slowest recovery for over 100 years.”