Britain has finally emerged from the longest recession in modern history but the recovery has only been minimal.
The growth of only 0.1% in the fourth quarter of 2009, as compared to the previous quarter, was far below the expectations of many economists who had suggested a rebound of up to 0.4%.
Today’s figure is only the first of three readings of GDP by the Office for National Statistics (ONS) for October to December 2009 and according to some sources the reading is so low that a revised version may reveal Britain is still in recession.
Britain is the last big economy to emerge from a full-blown downturn and had experienced six consecutive quarters of contraction.
The United States, Japan, China, Germany and France all climbed out of recession in the third quarter, between July and September, last year. The ONS will publish its revised reading on February 26 and a final figure in March.
“The Q4 GDP figures are a major blow to hopes that the UK economy had emerged decisively from recession in Q4,” said analyst Jonathan Loynes at Capital Economics. “No doubt some commentators will claim that the figures are under-estimating the true strength of the recovery and will be revised up in time. That is certainly possible. But it won’t change the big picture of an economy still operating way below both its pre-recession and trend levels of output.”
The main drivers of the minimal growth in the economy came from the retail and motor sector, both of which have been propped up by government interventionist schemes such as the heavily publicised scrappage scheme.
David Hudson, London Head of Formal Insolvency, Baker Tilly Restructuring and Recovery LLP, said that while the figure is positive it means little on a practical level. “The stark fact is that many businesses will fight to survive during 2010. Whilst any indicator of an improvement in our financial health is good news, there is still a long way to go. HMRC recognises this with its ‘time to pay’ agreements deferring payment for over 25,000 companies that have fallen into arrears; other creditors and lenders need to be aware that the health of the country as a whole still has a long way to go.
“Strong working capital disciplines will remain key in any true recovery phase. The major lending banks will stay vigilant to recognising robust businesses planning, while the management of UK PLC faces the challenges of finding the cash to fund growth, which is inherent to any recession recovery period as confidence levels improve.
“Motor dealers, for example, will be more concerned at the end of the scrappage scheme on their franchises than a 0.1 per cent increase in the economic health of our country and retailers will continue to be more concerned at the rising levels of personal insolvency and continued high level of unemployment meaning that consumer spending remain tight. Only when the capacity gap sufficiently narrows, which we don’t expect until the second half of the year, will the majority of the manufacturing base see genuine recovery.”