29 Sep

UK growth falls less than thought

The rate of contraction of the UK economy in the three months from April to June has been reduced again. Gross domestic product fell by 0.6% compared with the previous quarter, better than the previous estimate of a 0.7% contraction. The original estimate produced by the Office for National Statistics had indicated a 0.8% decline. The latest improvement came mostly from the manufacturing and construction sectors of the economy. The ONS figures showed manufacturing fell 0.1% in the second quarter, which was half the amount previously estimated. The rate of decline in construction was 0.8% instead of 2.2%, the ONS said.

Recovery hopes

Several other countries, including Germany and Japan, emerged from recession in the second quarter. Chancellor Alistair Darling suggested this week that the UK was approaching the end of its recession. "Germany, France and Japan are showing signs of growth. Many independent forecasters now believe the UK too is coming out of recession," Mr Darling said on Monday. "I think it is too early to say so with total confidence. But I stick with my Budget prediction that, as long as we continue to support the economy, recovery will be underway in the UK by the turn of the year," he said at the Labour Party conference in Brighton. The year-on-year decline in GDP remained at 5.5%. It was revised from a fall of 5.6% last month. Economists had expected the annual rate of decline to rise to a 5.4% contraction. "There is some good news in the mass of UK data released today, but generally the figures highlight the fragility of the economic recovery," said Vicky Redwood, an economist at Capital Economics. "It still looks likely to be a long, slow recovery."

QE progress

The official data comes as the Bank of England meets economists from the City to discuss its policy of adding money into the economy is working - known as quantitative easing (QE). The Bank initially had the authority to create up to £150bn on the balance sheet and surprised many by increasing the amount by another £25bn in August. "We are learning about how effective QE is at the moment," Colin Ellis, a former senior economist at the Bank of England, who is attending the meeting, told the BBC. "I think it's probably fair to say firstly that the economy was in slightly worse shape than they thought back in March - we had the second-quarter growth number which came in below expectations," referring to previous estimates of the growth figure. "But also it's probably true that the impact of QE has maybe been a little bit less than the bank would have originally thought."

BBC News. (2009). UK growth falls less than thought. [Online]. Available from: http://news.bbc.co.uk/1/hi/business/8280043.stm Accessed 29th September 2009.