UK growth shrinks less in Q2; robust mortgage hints recovery

Written by Bloomberg | Updated: Oct 1 2009, 05:23am hrs
The UK economy shrank less than previously estimated in the second quarter and mortgage approvals stayed near the highest in more than a year last month, a sign Britain is emerging from recession.

Gross domestic product fell 0.6% from the first quarter, compared with a prior measurement of a 0.7% drop, the Office for National Statistics said on Tuesday in London. Banks granted 52,317 loans to buy homes in August, close to the highest level since April 2008, a separate report by the Bank of England showed.

Britains worst recession in a generation is easing after five consecutive quarters of contraction. Chancellor of the exchequer Alistair Darling said on Monday that the recovery may be under way by the end of the year, supported by the governments stimulus measures and Bank of England asset purchases.

We should be looking forward to a decent positive number in the third quarter and an even better one in the fourth quarter, said Alan Clarke, an economist at BNP Paribas SA in London in an interview. But my view is: enjoy it while it lasts. We could see a soft patch in 2010.

GDP slumped 2.5% in the first quarter, the most since 1958 and revised down from a 2.4% decline. The recession has now shaved 5.6% off gross domestic product. From a year earlier, the economy contracted 5.5%, the most since records began in 1956, the statistics office said. Prime Minister Gordon Brown promised last week to maintain stimulus spending until the recovery is secure. The Treasury plans to sell an extra 220 billion pounds ($349 billion) in debt this year and next year expects a deficit of 12% of GDP.

Browns ruling Labour Party fell to third place for the first time since 1982 in an opinion poll published today. Both Conservatives and Liberal Democrats led Labour in the Ipsos-Mori Ltd survey finished September 27.

Many independent forecasters now believe the UK too is coming out of recession. I think it is too early to say so with total confidence, Darling told the Labour Party annual conference in Brighton, England on Monday. As long as we continue to support the economy, recovery will be under way in the UK by the turn of the year.

A report by Hometrack Ltd showed on Monday that UK house prices increased the most in two years in September as confidence in the property market improved. Services expanded at the fastest pace in almost two years in August. In the second quarter, manufacturing fel l 0.1%, half the amount previously estimated, while construction declined 0.8% instead of 2.2%, the statistics office said.