By Richard Johnstone
27 April 2011
The UK economy grew by 0.5% in the past quarter, but economists have said it is just ‘treading water’.
The growth between January and March, reported today by the Office for National Statistics, follows the 0.5% contraction in the previous quarter, which Chancellor George Osborne blamed on the severe winter weather.
Annual growth is now estimated at 1.8%, returning gross domestic product to the level it was in the third quarter of 2010.
The ONS reports that the growth between January and March was driven by the business services and finance sector, which grew by 1%, compared with a decline of 0.8% in the previous quarter.
Total output in the services sector increased by 0.9% in the first quarter compared to a fall of 0.6% in the previous quarter. Other factors that contributed to the growth include manufacturing, which rose by 1.1%, and transport, storage and communication, which increased by 2.7%.
The CBI business lobby said that while the modest rebound in growth was encouraging, the recovery remains slow and sluggish. CBI director general John Cridland said that the reason the figures were not stronger was due to a 4.7% slump in the construction sector, which had been hit by a January hangover from the winter’s severe weather.
Charles Davis, managing economist for the Centre for Economics and Business Research, said that the ‘relatively modest’ quarter-on-quarter growth rate meant the economy was ‘treading water’. The growth figure was below the CEBR’s expectations of a 0.6% expansion, and the Office for Budget Responsibility’s forecast of 0.8%.
Davis added that the country’s output remained around 4% lower than the pre-recession peak in the first quarter of 2008.
He said: ‘Overall, today’s data underlines our view that although the economy will grow this year, 2011 is going to be a tough year in the recovery – particularly for households.
‘We have taken the view that if the Bank of England did raise [interest] rates, they would wait for strong first quarter data. That has not materialised - moreover, the evidence supports the view that the recovery is still relatively weak. With output basically unchanged from six months ago, the Bank has little reason to raise the rate in the short run.’
Today’s growth figure is also below the projected 0.7% increase estimated by the National Institute of Economic and Social Research earlier this month, although within the 0.2% margin of error. The institute had forecast that the figure would be ‘flattered by the economic impact of the adverse weather in the final quarter of last year’.
Despite today’s small boost, Ian Brinkley, director of socio-economic programmes at the Work Foundation, said that flat underlying growth would make ‘any hope of an early reduction in unemployment remote’.
Unison general secretary Dave Prentis said the figures were ‘proof that Tory policies are the wrong prescription for our economy’ as growth had stood still for six months.
