Experts warn UK recovery is fragile

THE UK moved out of recession faster than was first thought at the end of 2009 as the economy grew by 0.4%.

THE UK moved out of recession faster than was first thought at the end of 2009 as the economy grew by 0.4%.

That was stronger than the 0.3% forecast between October and December largely due to growth in services, construction and agriculture.

The Office of National Statistics said output shrank by 4.9% during 2009 as a whole – slightly less than the 5% slump first feared but still the biggest fall since official records began.

While the upward revision gives some comfort, the real focus will be on the first official estimate for output between January and March.

This will arrive on April 23 and could show a slide back into recession after the impact of January’s snow on sectors such as retail, as well as the return of VAT to 17.5%.

“The economy was receiving a lot of help in the fourth quarter of 2009 from monetary and fiscal stimulus and these props are starting to be removed,” warned IHS Global Insight economist Howard Archer.

The figures published showed a slightly shallower 0.9% fall in construction output during the final three months of last year, while business investment has also fallen by less than expected.

But the proportion of income put aside by families shrank to 7% from 8.4% – its first quarter-on-quarter fall for since July-September 2008 – which may reflect households bringing forward spending to beat VAT hikes.

ING economist Mark Cliffe said the fall in savings was a “sign of things to come” and claimed the average household has accessible savings of just £2,200.

He added: “Since banks are likely to be less willing to lend and consumers less willing to borrow than in previous cycles, households may have to scale back their purchases of assets.”

A Treasury spokesman said: “While it is welcome to see an upward revision, recent data in the EU and elsewhere has highlighted that there are still risks and uncertainties to this recovery and there is no room for complacency.”

Chancellor Alistair Darling warned significant action would be needed next year to reduce Britain’s ballooning national debt, but said public spending cuts would be fair and manageable.

In a Treasury Select Committee hearing on last week’s Budget, Mr Darling said targets to halve public sector borrowing in four years are sensible.

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