Britain Avoids Triple-Dip Recession

LONDON — Britain’s economy avoided entering an unprecedented — and politically damaging — third recession in five years, according to official estimates released Thursday.

During the first quarter of this year the country recorded an increase of three-tenths of a percent in gross domestic product, compared with the previous three-month period when it contracted by a similar amount, the Office for National Statistics said. Gross domestic product had been broadly flat over the last 18 months, the agency added.

The British economy managed some growth despite continued weakness in the construction sector, which shrank by 2.5 percent, and despite the cold weather early in the year that some analysts feared would hurt economic activity.

Though the estimates paint a picture of a flat economy, they are slightly better than most analysts expected and will be a relief for the chancellor of the Exchequer, George Osborne.

“Today’s figures are an encouraging sign the economy is healing,” Mr. Osborne said in a statement. “Despite a tough economic backdrop, we are making progress.”

A triple-dip recession would have raised more questions about his austerity policies at a time when bad economic news has been piling up.

Last week, the International Monetary Fund raised doubts about the fast pace of Mr. Osborne’s deficit-reduction strategy and Fitch became the second credit rating agency to downgrade Britain from its prized triple-A status. Employment figures, which had been one of the rare spots of good news for Mr. Osborne, also turned sour, with a jump of 70,000 in joblessness in the three months to the end of February.

Mr. Osborne has already had to slow his deficit reduction plans, and a triple dip would have increased political pressure on him to slow even further.

A recession is normally defined as two consecutive quarters of economic contraction. The British statistical agency said that prospect was averted mainly by an increase in output from service industries, which grew by 0.6 percent. Mining and quarrying increased by 3.2 percent; construction was down 2.5 percent.

The Office for National Statistics said snowfall and cold weather in the early part of the year “appears to have had a limited impact on G.D.P. growth.”

“The strongest evidence was that it reduced retail output in January and March 2013 but boosted demand for electricity and gas in February and March, which increased output in the energy supply industries,” it said.

Nawaz Ali, a market analyst covering Britain for Western Union Business Solutions, said the “surprising and bullish outcome from today’s G.D.P. data has sent the pound soaring in currency markets this morning.”

“Doubts about the British economy’s performance over the coming quarters will remain,” he added. “However, the positive figures end the triple-dip threat and will certainly ease pressure on the Bank of England to shift course on quantitative easing, which has been a big worry for currency investors.”

Though it makes little difference economically whether or not the threshold was crossed, headlines referring to recession could have a psychological impact on consumers, making them even less willing to spend.

Across Europe the debate is growing about the wisdom of tough austerity policies and whether they are trapping economies in a cycle of stagnant growth, reduced tax receipts and higher debt.

In Britain the opposition Labour Party has been calling on the coalition government of Conservatives and Liberal Democrats to change course. Ahead of the announcement of the data, Chris Leslie, a Labour member of Parliament who is its spokesman on the economy, argued that even a small increase in growth would be insufficient.

“Growth of just 0.3 percent would simply mean the economy is back to where it was six months ago,” he said in a statement. “This isn’t good enough. After nearly three years of flat-lining we need to see decisive evidence that a strong and sustained recovery is finally under way.”

Article source: http://www.nytimes.com/2013/04/26/business/global/britain-avoids-triple-dip-recession.html?partner=rss&emc=rss