Growth figure fuels recovery fears

(REUTERS)

Fears over the strength of Britain's economic recovery were fuelled today after new figures showed only a tepid turnaround from the snow-bound end to 2010.

Gross domestic product (GDP) - a broad measure for the total economy - grew by 0.5% between January and March, reversing a shock decline of 0.5% in the final quarter of 2010, the Office for National Statistics (ONS) said.

But while the UK has escaped a double-dip recession, the ONS warned underlying growth was broadly flat and the economy has made no progress since the third quarter of 2010.

Chancellor George Osborne said the figures were "good news" - pointing to a pick-up in manufacturing output - and would reinforce the Government's determination to press ahead with its cuts strategy for tackling the deficit.

In the Commons, however, Labour leader Ed Miliband clashed with David Cameron, accusing ministers of "extraordinary complacency". The Prime Minister retorted that the Opposition was "talking the economy down".

Shadow chancellor Ed Balls said the figures revealed an economy that had been "flatlining" since the autumn.

"By making a political choice to cut further and faster than any other major economy this Conservative-led Government has choked off the recovery when it should have been secured and pushed up unemployment too," he said.

"George Osborne is in such denial he thinks this is on track when everybody else can see that he has taken the economy into the ditch. As a Chancellor, he is now looking increasingly out of his depth."

Mr Osborne however pointed to the strength of the manufacturing sector, in contrast to the "unbalanced" economic performance of recent years when it had not done well.

He said that new jobs were being created while Government borrowing was down.

"Of course, around the world we are facing some choppy economic conditions - a big rise in the oil price in recent months. You see countries dealing with very high budget deficits, and we've got one of the highest," he said.

"But I think that reinforces our determination to stick to the course, and the economy is growing and that's good news."

The overall performance was dragged down by a lacklustre construction sector, which industry experts said was suffering at the hands of low confidence in the economic outlook.

Analysts said the stagnant economy made an imminent interest rate hike a "tough proposition" as the Bank of England juggles the problems of soaring inflation and weak growth.

Industrial production, which includes manufacturing, mining and utilities, grew by 0.4%, compared with a 0.8% increase in the previous quarter.

Within this category, manufacturing maintained growth of 1.1%, but mining and utilities dropped 0.4% and 3.5% respectively.

The biggest decline came from the construction sector, which decreased 4.7% in the quarter, compared with a 2.3% decrease in the previous quarter.

The services sector - which makes up some 75% of the total economy - grew by 0.9%, compared to a decline of 0.6% in the previous quarter.

Vicky Redwood, senior UK economist at Capital Economics, said: "The figures suggest that underlying activity in the economy remains pretty much stagnant.

"The 0.5% quarterly rise in output means that the economy did nothing more than reverse the fourth quarter's snow-related dip.

"In fact, if there was some temporary 'catch-up' of output lost in the fourth quarter, then underlying growth may even have been slightly negative."

Howard Archer, chief UK and European economist at IHS Global Insight, said with consumers' spending power squeezed, the outlook for growth remained a cause for concern.

"The muted first quarter rebound in GDP growth reinforces our suspicion that growth will be limited going forward as the fiscal squeeze increasingly kicks in," he said.