Business

UK economy grows by 0.5% in first quarter of 2011

  • 27 April 2011
  • From the section Business
  • comments

The UK economy grew by 0.5% in the first three months of the year, official figures have shown, reducing the risk of a double-dip recession.

The chancellor welcomed the return to growth, which followed a contraction of 0.5% at the end of 2010.

But Labour said the economy was flat and the recovery had been "choked off".

The manufacturing and services sectors had performed well, the Office for National Statistics said, but construction output had fallen sharply.

Mixed response

Chancellor George Osborne said: "It is good news that the British economy is growing. It is particularly good news that manufacturing is growing so strongly, when we have had such an unbalanced economy in recent years, and manufacturing has not done so well.

"Jobs have been created since the New Year and government borrowing is down," he added.

Ed Balls, Labour's shadow chancellor, responded: "If George Osborne thinks zero growth over six months is good news and a sign that the recovery is on track then he is more out of touch and out of his depth than I feared. "

'Fragile recovery'

Economists gave a mixed response to the figures.

David Kern, the chief economist at the British Chambers of Commerce, said: "These figures were mixed and well below the Office for Budget Responsibility prediction that the economy would grow by 0.8% in the quarter.

"Given the fragility of the recovery, it is vital for the government to persevere with policies that support growth, and remove the obstacles that prevent businesses from creating jobs and exporting."

Growth in manufacturing continued to be strong, at 1.1%, the same as the previous quarter.

The GDP also figures showed that the services sector had returned to growth, after contracting during the bad weather at the end of last year. This had particularly been the case with hotels and restaurants, the ONS said.

However, construction - one of the worst hit areas in the last quarter of 2010 - was down by 4.7% at the start of 2011.

Ross Walker, from RBS Financial Markets, said that as new data came in, the picture was likely to improve: "You do have what looks to me like a surprisingly large fall in construction output. Do we really believe that the level of construction output was lower in January than in December? We may well see some revisions here."

These figures are an initial estimate and will be revised at least twice in the coming months as more information is gathered.

'Uncertainty'

The low rate of growth could lessen the chance of an early interest rate rise by the Bank of England to combat inflation, which is currently running at 4%, analysts say.

"We are expecting the Bank of England to raise rates in August," said Deutsche Bank economist George Buckley, "but it is far from certain whether they will do that".

"We will have the second quarter GDP numbers by then, but the problem is they may have been negatively affected by the royal wedding and two back-to-back bank holiday weekends which will depress production.

"It is still very uncertain. All of these figures are being affected by a lot of volatility, by holidays, the weather, snow. It has all had a big impact on the numbers.

Lending lags

The Prime Minister, David Cameron, said the growth in manufacturing indicated that the economy was moving away from its reliance on the service sector.

But he added that bank lending was still a stumbling block: "On the banks, we have an agreement with them they must increase their lending to businesses, large and small, and that needs to happen."

Separate figures released on Wednesday from the British Bankers' Association (BBA) showed that total net lending to companies fell in March by £4.7bn compared with a year ago, a slightly bigger fall than in February.

The BBA said in a statement that weak trading activity meant businesses were less likely to borrow money for expansion, and most were trying to pay down debts.

More on this story

Related Internet links

The BBC is not responsible for the content of external Internet sites