UK out of recession?

The UK Office for National Statistics announced on 26th January that the UK is officially out of recession. After six consecutive quarters of contraction, the British economy finally registered positive growth.

The UK grew by 0.1% in the fourth quarter of 2009, although an amount that skims the borders of statistical insignificance, this modest figure heralds the end of Britain’s greatest economic slump since the Depression. The International Monetary Fund added to the relief by forecasting 1.3% growth during 2010 in Britain. It also predicts 2.7% growth in the US, 1.5% in Germany and 1.4% in France.

However, the evidence from the ONS suggests that the UK is still in a troubled times.
The yearly trend is still negative, indicating that although the UK is technically out of recession, output and employment are still well below those levels enjoyed two years ago. Economic activity is still below the annualised trend.

Furthermore, ONS’ preliminary forecasts are often subject to revision.
As we can see, there is much tweaking and refining of data before the “final” growth figure is fixed. Even a -0.2% alteration would see Britain’s recession prolonged.

The City was expecting a robust return to growth following higher employment figures and lower business failure rates in Q4 2009. Yet, the feeling in the Square Mile was one of disappointment. Analysts continued to fret about the potential to fall into the “double dip” recession.

With all political parties promising major cut-backs in public spending to reduce the record-braking government debt, a major stimulus to the economy will be withdrawn. Further still, the collapsing pound may fuel inflationary pressures that might further eat into nominal GDP growth figures.

Although most major trading partners are now growing, some key economies are still struggling: the Spanish economy is forecast to remain in recession until 2011.

Recovery at present looks perilously frail, coupled with already low confidence-levels, the UK tipping back into recession looks a 50/50 bet for Q1 2010.