By: Dr. Mike Campbell
According to preliminary figures released by the UK’s Office for National Statistics, the UK economy grew by 0.5% in the first quarter of 2011. This result reverses a 0.5% contraction which was seen in the final quarter of 2010. A technical recession is defined as two consecutive quarters where the economy contracts, so the UK has avoided the dreaded “double dip recession” that some analysts were predicting as leading economies returned to growth after the global financial crisis.
The manufacturing sector has shown good growth during the quarter, but construction has lagged well behind. Manufacturing output was up by 1.1% in Q1, matching the sector’s performance in Q4. Naturally, politicians are interpreting the data along party lines with coalition sources lauding the performance and opposition forces suggesting that two quarters with no net growth between them is hardly a source for economic comfort. Government sources are quick to lay the blame at the door of the previous administration (now in opposition) and the opposition is happy to taunt the government for delivering the instant solution – which they failed to find when in power.
The figures are undeniably weak (but at least they show growth rather than contraction), so it is likely that the Bank of England’s Monetary Policy Committee will be reluctant to raise interest rates in the near term; particularly since inflationary pressure within the UK economy unexpectedly eased last month. The construction industry showed a contraction of 4.7% in the first quarter and is in a technical recession since it also contracted in the last quarter of 2010. Mortgages are still hard to come by for new residential property, but confidence may be an even more elusive commodity in the current UK climate.