Triple dip recession avoided despite slow growth

Labour have called for greater curbs on the City. Picture: Getty

But political opponents pointed out that the UK is suffering its slowest recovery in a century after the Office of National Statistics (ONS) revealed that the UK economy grew by just 0.3 per cent in the first quarter of 2013 compared to the last three months of 2012.

The figures provided some much-needed good news for the beleaguered Chancellor after a miserable month where the International Monetary Fund (IMF) called for a lessening of UK austerity and the UK’s credit rating was reduced to AA+ by Fitch, with public sector borrowing down just £300 million in the last 12 months.

Mr Osborne said: “These figures are an encouraging sign the economy is healing. Despite a tough economic backdrop, we are making progress.

“The deficit is down by a third, businesses have created over a million and a quarter new jobs and interest rates are at record lows.”

He added: “We all know there are no easy answers to problems built up over many years, and I can’t promise the road ahead will always be smooth, but, by continuing to confront our problems head on, Britain is recovering and we are building an economy fit for the future.”

But opponents said that the modest growth underlined a need for a change of strategy.

Labour shadow chancellor Ed Balls said: “If we’re to have a strong and sustained recovery, and catch up all the ground we have lost over the last few years, we need urgent action to kick-start our economy and strengthen it for the long-term – as Labour and the IMF have warned.”

He added: “We need radical bank reform and a jobs and growth plan, including building thousands of affordable homes and a compulsory jobs guarantee for the long-term unemployed.

“And, instead of a tax cut for millionaires, we need a lower 10p starting rate of tax to ease the squeeze on millions of people on middle and low incomes.”

The ONS said the powerhouse services sector – which accounts for more than three quarters of GDP – grew by 0.6 per cent between January and March, driven by 1.1 per cent growth in the retail, hotels and restaurant trades sector. There was also a strong boost from transport, storage and communications, which saw growth of 1.4 per cent.

Surging demand for electricity and gas during the cold weather saw output from the energy supply sector rise 0.5 per cent, according to the ONS.

While sales in the retail sector fell amid the snow in January and March, a strong February helped it notch up growth of 0.3 per cent overall in the quarter.

But fears remain over the strength of the recovery, with key sectors such as construction and manufacturing still well below the peak in 2008.

Construction activity plunged by 2.5 per cent in the first quarter and still remains 18.1 per cent below pre-financial crisis levels.

Production and manufacturing edged 0.2 per cent higher at the start of the year, but are also significantly down on 2008 – by 13.4 per cent.

The economy as a whole is 2.6 per cent below the 2008 peak, despite improvements from the services sector, which is 0.8 per cent higher than five years ago.

With GDP only 3.7 per cent higher than it was in the trough of the 2009 recession, Mr Osborne still faces a long haul in getting the UK back on track.

SNP Finance secretary John Swinney also pressed for a stimulus package. He said: “There is now a growing consensus calling on the Chancellor to change course on the UK’s failing economic policies.

“These figures show that underlying growth remains extremely fragile and that the UK economy has been bumping along the bottom for the last 18 months. The UK government is failing in its responsibilities.

“The economy continues to be well below pre-recession levels – with these figures confirming that the UK has the worst economic performance of any G7 country except Italy.

“The IMF this month downgraded its forecast for growth in the UK economy during 2013 by 0.3 percentage point to just 0.7 per cent, and further downgraded their predictions for 2014, the most significant downgrade for any advanced economy.”

He also argued that the latest data puts Scotland in a stronger position than the rest of the UK.

Mr Swinney said: “Scottish data last week showed positive trends in the labour market and in economic growth, with Scotland growing in the final quarter of 2012, whilst the UK as a whole contracted, and with Scotland outperforming every country in the UK in terms of its unemployment rate.

“We are committed to building sustainable economic growth for Scotland and we are adopting a specifically Scottish approach to this.

“We can’t allow the UK government’s economic policies to derail these positive developments.

“It is time for the Chancellor to change his fiscal consolidation plan.”

Economists said that the UK economy has a long way to go before it recovers.

Phil Orford, the chief executive at the Forum of Private Business said: “While the service sector looks to have led the way, the construction industry figure is more worrying, and shows the need to get projects moving at a quicker pace.”

Vicky Redwood, UK economist at Capital Economics, said the recovery still faced “significant obstacles ahead, with households still experiencing falling real pay and policy makers still struggling to get bank lending to rise.

“These figures offer some hope that things might finally be starting to move in the right direction again,” she added.

Analysis by David Bell: Services revival the key to increase in output, but Britain still a long way from full recovery

UK OUTPUT grew by 0.3 per cent in the first quarter of 2013. This was at the high end of expectations and meant that the Chancellor will not have to face the embarrassment of admitting that the UK economy has gone into a triple-dip recession. The markets reacted favourably with stock prices gaining and no sudden increase in the government’s cost of borrowing.

A revival in services was responsible for the increase in output. The service sector, which now accounts for 77 per cent of the UK economy, grew by 0.6 per cent in the first quarter. The increase was spread across distribution, hospitality, business and financial services and government. Business and financial services have grown faster than any other major sector since 2009.

Surprisingly, the output of government services such as health and education has continued to grow even though this sector has been subject to significant cuts as a result of the Chancellor’s austerity programme. Output has been rising even though public-sector employment has been falling, implying that labour productivity in our public services has been rising sharply.

The UK and Scottish economies have almost been moving in lockstep since 2009. In four years, they have grown by less than 4 per cent, implying that output is still below its 2007 peak. We are still in recession.

So the Chancellor is still in much the same fix he was in before yesterday. Growth close to the long-term trend in the UK of 2.5 per cent still looks a distant prospect. And none of the potential sources of demand are about to burst into spring-like growth. Foreign markets are, at best, subdued; consumers are suffering cuts in their real wages as prices grow faster than wages; large companies are replete with cash, but also with uncertainty, while smaller companies can’t access the credit they need to invest. The difficulty for the Chancellor’s opponents is that, thus far, they have not put forward a reasoned case as to how far austerity needs to be rolled back to allow economic growth to return to its long-term trend.

• David Bell is an ESRC Professorial Research Fellow at the University of Stirling

Jobless rate in Spain at record level

SPAIN’S unemployment rate shot up to a record 27.2 per cent in the first quarter of this year, official figures show.

The country’s National Statistics Institute said that the number of people unemployed rose by 237,400 people in the first three months of the year compared to the previous quarter, taking the total to 6.2 million.

Spain is in recession again as it struggles to deal with the collapse of its once-booming real estate sector in 2008.

In an attempt to initiate a recovery, the conservative government has launched a series of financial and labour reforms and pursued a raft of spending cuts and tax increases that have succeeded in reducing a swollen deficit.

Even so, the country had the highest budget deficit among the 17 European Union countries that use the euro in 2012.