British Economy Exits Recession

The U.K. economy crept back to growth in the fourth quarter of 2009, narrowly emerging from a deep recession that began in the second quarter of 2008., WSJ 1/26/2010 10:08:55 AM

However, growth in the latest quarter was far less than expected, heightening fears that the economy hasn't moved decisively out of a long recessionary period.

The Office for National Statistics said Tuesday that gross domestic product in the three months to Dec. 31 increased 0.1% compared with the third quarter. Compared with a year earlier, GDP fell 3.2%.

For the whole of 2009, the economy contracted 4.8%—its biggest output fall on record.

Preliminary growth data have been revised higher in each of the last two quarters, the ONS said.

The economy's expansion will come as a relief to the U.K. government, which forecast a return to growth at the turn of the year. However, the tameness of the growth will raise concerns that the economy could yet fall back into contraction.

The Bank of England has long warned that the recovery will be slow given continued strains in the banking system and the need to reduce high levels of public sector and household debt.

The ONS said that total services and total production were both up 0.1% in the fourth quarter. In services, the biggest lift came from distribution, hotels and restaurants, which were up 0.4%. Government and other services output rose 0.2%. In production, manufacturing gained 0.4%, but utilities output fell 3.3%.

However, some economists feared that, with the value-added tax rising to 17.5% from 15%, on Jan. 1 and the political uncertainty of the election this year, the economy could weaken in the early months of 2010.

Even if the most severe recession since World War II is over, its impact will linger. The unemployment rate could continue to rise for some time to come.

The BOE has said the output gap—or the difference between what the economy can produce and what it is producing—will remain large for a long time. Government debt is also set to rise, with net debt to GDP expected to reach 77% in four years time.

British Economy Exits Recession