UK claws its way out of recession

LONDON // The UK crept out of recession in the fourth quarter of last year but massive state debt will probably stunt recovery this year as voters go to the polls. The Labour government has been banking on a strong recovery to overturn its poor opinion poll ratings before a general election that must be held no later than June 3, but these latest figures will throw further doubt on retaining power at Westminster.

In a report released yesterday, the Office for National Statistics (ONS) said GDP climbed by 0.1 per cent between October and December, well below analysts' forecasts for growth of 0.4 per cent after an 18-month recession that wiped out 6 per cent of output. The news means that Spain is the only major western power still trapped in recession following the aftermath of the global economic crisis and the subsequent worldwide slump.

"GDP increased 0.1 per cent in the fourth quarter of 2009, compared with a decrease of 0.2 per cent in the third quarter," the ONS said. "The rise in output was due to growths in services and production." But the figure disappointed market watchers, who had expected a return to growth of 0.4 per cent in the final three months of last year. The pound slumped against rival currencies following the ONS estimate, while London's benchmark FTSE 100 stock market index remained about 0.6 per cent lower.

The ONS added that the UK economy shrank by 4.8 per cent last year, compared with the previous year, the biggest annual contraction on record. The UK government had forecast contraction of 4.75 per cent last year, while the country's economy has shrunk by 6 per cent since the recession began in the second quarter of 2008. Confirmation of the UK's departure from recession may not be enough for Gordon Brown, the prime minister, to keep his job come the general election.

Government borrowing is predicted to hit a record £178 billion (Dh1.06 trillion) for the financial year which ends in April. But Mr Brown insisted yesterday that now was not the right time to cut state aid, despite the mountain of debt that was largely caused by the multibillion-pound bailouts of struggling British banks. "If you withdraw the stimulus too quickly, then you risk a period when you put the recovery at risk. There is no doubt that that's the view of the rest of the world. It is certainly my view," Mr Brown said.

The state of the UK's troubled economy has become the key battleground ahead of the general election that is likely to see Mr Brown's Labour Party defeated by the main opposition Conservatives, according to polls. Whichever party wins power, the country faces public spending cuts and taxation hikes in the years ahead as it looks to reduce state borrowing, economists say. "The fourth-quarter GDP figures are a major blow to hopes that the UK economy had emerged decisively from recession," said Jonathan Loynes, a director and the chief European economist at Capital Economics.

The economy, which is also struggling with high unemployment caused by the financial crisis, contracted for six quarters in a row up until the final quarter last year, its longest recession since records began. Alistair Darling, the chancellor of the exchequer, had predicted last month that the economy would grow by 1 per cent to 1.5 per cent this year, after admitting that the nation's recession was deeper than originally thought.

These latest figures may increase doubts about the pace of global recovery as the UK is also the first Group of 7 industrialised nations to report GDP figures for the fourth quarter. Evidence from the euro zone suggests its economy may have grown at a very slow rate in the last quarter and the first quarter of this year. "The chancellor has always said that the economy would return to growth by the turn of the year, and today's estimate of 0.1 per cent growth in the fourth quarter bears that judgement out," a UK treasury spokesman said.

"What this estimate makes clear is that the government is right to be confident but cautious about the prospects for the economy and that it is right that we keep supporting the economy. "Withdrawing the support that has helped us get to this point would put the recovery at risk." * with Reuters and Agence France-Presse