Britain crawls out of recession, GDP rises 0.1%

Growth fuelled by expansion in manufacturing and services sectors.

The UK economy resumed growth by less than economists forecast in the fourth quarter as service industries and manufacturing expanded just enough to pull Britain out of its longest recession on record.

Gross domestic product rose 0.1 per cent from the third quarter, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 33 economists was for a 0.4 per cent increase and the lowest prediction was for a result of 0.2 per cent.

Bank of England policy makers will study the data as they assess the strength of the recovery and decide next week whether to halt bond purchases and prepare to withdraw emergency stimulus measures. The weakness of the pickup may hamper Prime Minister Gordon Brown’s efforts to win an election by June as he campaigns on his plans to curb the budget deficit.

“It’s clearly disappointing,” said Simon Hayes, chief UK economist at Barclays Capital and a former Bank of England official. “The recovery is going to be uneven. I think the Bank of England will halt quantitative easing in February, but if we don’t see sustained growth it’s likely we may see them extend it in the middle of the year.”

The pound fell as much as 0.4 per cent after the release and traded at $1.61 as of 9.44 am in London. The yield on the two-year government bond was down 1 basis point at 1.2 per cent.

The recession, which lasted for six consecutive quarters, has shaved 6 per cent off GDP, the statistics office said. The economy shrank 4.8 per cent in 2009, the biggest annual drop since records began in 1949, officials said.

The economy contracted 3.2 per cent from a year earlier in the fourth quarter, compared with a median decline of 3 per cent forecast in a Bloomberg News survey of 30 economists.

The data, the first for the fourth quarter from a Group of Seven nation, means Britain is the last of them to exit the recession sparked by the worst financial crisis since the Great Depression. The US will release GDP data for the fourth quarter on January 29.

Brown said yesterday he is confident the UK is emerging from recession, though the economy “remains fragile” and the biggest mistake Britain could make would be to withdraw economic stimulus measures too early. Brown and Conservative leader David Cameron are battling to convince voters they are best placed to cut the ballooning budget deficit without hurting the economic recovery.

Services, which make up 76 per cent of GDP, expanded 0.1 per cent on the quarter. Industrial production grew 0.1 per cent and within that, manufacturing rose 0.4 per cent, the statistics office said. Construction output stayed unchanged from the previous three months.

Close Brothers Group Plc, the 131 year-old London-based investment bank, said last week earnings this year would be “solid” after reporting a “good” end to the year. “However, this will depend on the prevailing economic environment and financial market conditions,” the company said on January 22.

Bank of England Governor Mervyn King said last week the UK faces “a long period of healing” as “at this very early stage of the recovery, it is particularly difficult to judge the medium-term prospects for the economy.” Policy makers will decide next week whether to halt bond purchases after buying 200 billion pounds ($325 billion) so far.