Weak Growth, but Britain Avoids Triple-Dip Recession

Although the data were hardly robust, and were still subject to revision, for now the indication that Britain’s economy eked out growth of three-tenths of one percent in the first quarter relieved some of the pressure on architects of the country’s austerity drive.

A triple-dip recession would have been a psychological jolt to consumers and raised more questions about the government’s strict deficit-reduction program at a time when bad economic news has been piling up in Britain, and while policy makers all around Europe are starting to focus more on the need for growth.

Instead, although the economy has been broadly flat for the past 18 months, Britain’s chancellor of the exchequer, George Osborne, was able to argue on Thursday that there were reasons to be encouraged by the small uptick in the country’s gross domestic product.

The rise in G.D.P. was in comparison to the previous three-month period, when the economy contracted by the same amount, the Office for National Statistics said. Two consecutive quarters of contraction constitute a recession.

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

Anemic as the growth might be, they were slightly better than most analysts predicted.

“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.”

Analysts cautioned that estimates of the type published Thursday are often revised, as more data comes available, and so the final figures could be lower.

“While preliminary estimates of G.D.P. growth need to be treated with a degree of caution, the breakdown of this release, if taken at face value, is a welcome surprise,” James Ashley, Senior Economist, RBC Capital Markets wrote in a commentary Thursday.

Although a member of the European Union, Britain uses the pound and not the euro. That gives it the advantage of having a floating currency, which has dropped in value against the euro this year. While that has helped keep its exports relatively more competitive on global markets, Britain is still some way from having a convincing recovery.

The data also highlighted the extent to which the country remained dependent on its large service sector, despite government efforts to rebalance the economy and to promote manufacturing.

Business services and finance together account for around 29 percent of British G.D.P. They contributed 0.1 percent to the 0.6 percent increase from the services sector.

Mining and quarrying, though a smaller part of the overall economy, increased by 3.2 percent.

Construction was down 2.5 percent.

“Doubts about the British economy’s performance over the coming quarters will remain,” said Nawaz Ali, a market analyst covering Britain for Western Union Business Solutions.

“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.”

Quantitative easing refers to moves by the central bank to pump more money into the economy, mostly by buying up government debt on the open market. The Bank of England has pursued such a course, even if critics have said the amounts spent have had little stimulative effect.

But the bigger debate across Europe is about the wisdom of tough austerity policies of the sort Mr. Osborne has pursued, and whether they are trapping economies in a cycle of stagnant growth, reduced tax receipts and higher debt. This week, José Manuel Barroso, president of the European Commission, said Europe may have hit the political limit of austerity-driven policies because of growing public opposition.

Last week, the International Monetary Fund raised doubts about the pace of Mr. Osborne’s deficit-reduction strategy and Fitch became the second credit rating agency, after Moody’s, 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. But the opposition Labour Party has been calling on the coalition government led by the Conservative prime minister, David Cameron, to go further and change course.

“These lackluster figures show our economy is only just back to where it was six months ago and continue the picture of flat-lining,” Ed Balls, Labour’s finance spokesman, said in a statement. “David Cameron and George Osborne have now given us the slowest recovery for over 100 years.”

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