UK crawls out of recession in Q4, GDP up 0.1%

Written by Reuters | London | Updated: Jan 28 2010, 03:37am hrs
Britain crept out of recession in the fourth quarter of 2009 but only just and with a far weaker growth rate than expected, data showed on Tuesday, suggesting any monetary tightening remains a long way off.

The Labour government has been banking on a strong recovery to overturn its poor opinion poll ratings before an election expected in 100 days, but these latest figures will throw further doubt on that happening.

The Office for National Statistics said gross domestic product rose by 0.1% between October and December, well below analysts forecasts for growth of 0.4% after an 18-month recession which wiped out 6.0% of output.

The Q4 GDP figures are a major blow to hopes that the UK economy had emerged decisively from recession, said Jonathan Loynes, an economist at Capital Economics. Sterling fell and British government bond futures rose after weaker than expected figures, which also showed output fell 3.2% from the same period a year ago and overall GDP was down by a record 4.8% in 2009.

Most analysts predict the Bank of England will halt its 200 billion pound asset buying programmedesigned to pump money into the economynext month but Tuesdays GDP figures are likely to boost expectations that any interest rate rises from the current record low are many months away.

The Treasury said the figures backed the case for continuing to support the economy as the opposition Conservatives, leading in opinion polls, have argued they would tighten fiscal policy this year in order to bring down a record budget deficit.

While Prime Minister Gordon Brown has argued that his decisions have helped Britain weather the crisis, the UK is the last of the major economies to exit the downturn. The latest figures may increase doubts about the pace of global recovery as Britain is also the first G7 country to report GDP figures for the fourth quarter. Evidence from the euro zone suggests its may have grown at a glacially slow rate in the last quarter of 2009 and the first quarter of this year. From peak to trough, Britains recession was far worse than the downturns of the early 1980s and 1990s and policymakers expect a long slog to get the economy back to pre-crisis levels.