UK out of recession, says think-tank

Britain will have emerged from its deepest recession since the second world war when official data are released later this month, with the economy showing modest growth in the fourth quarter after 18 months of contraction, according to a respected economic think-tank.

The economy is likely to expand by 0.3 per cent over the three months through December, according to the National Institute for Economic and Social Research.

However, over the full calendar year of 2009 the British economy is likely to have seen a bigger contraction than in any year of the great depression and the largest annual slump since 1921, NIESR said.

It expects the full year contraction to be 4.8 per cent.

Britain and Spain were the only two European Union countries still officially in recession at the end of the third quarter of 2009.

“The broader picture of the depression is that output fell sharply for the 12 months until March [2009] and has not changed very much since then,” NIESR said.

Martin Weale, the institute’s director, said that while evidence of a recovery was emerging, it appeared to be a weak one. If Britain’s economy expanded over a full year as it did in the fourth quarter of 2009, annual growth would be just 1.2 per cent – far from the strong bounce that has often been associated with deep recessions. “That is what we have been forecasting for some time,” Mr Weale said.

NIESR’s forecast followed the release on Wednesday of official data on industrial production for November, which showed stronger than expected headline growth of 0.4 per cent for the month.

However, much of that reflected a sharp, 7.2 per cent jump in output of the volatile North Sea oil and gas industries.

Much capacity from that sector had been closed for maintenance in the summer, contributing to the weakness seen in third-quarter GDP.

Neville Hill, economist at Credit Suisse, agreed that the data suggested a pick-up in GDP for the fourth quarter, although the strength of oil and gas extraction might later be revised. “That’s normally a very volatile component of output and some reversal of that sharp rise is likely in the coming months,” he said.

Manufacturing, the largest and single most important element of industrial production, was flat for the second consecutive month, and some economists expressed surprise that activity had not expanded as suggested by several surveys.

The data raised questions about how manufacturing will fare once stimulus measures are withdrawn, said Alan Clarke, economist at BNP Paribas.

“Manufacturing was more worryingly unchanged in month on month terms . . .  again. If manufacturing output can’t expand when we have masses of stimulus (currency weakening, loose monetary policy, the unwind of destocking, a rebound in overseas demand etc), then when can it?” Mr Clarke said.

“Overall, not a bad headline reading, but clearly not a good report.”

Colin Ellis, economist at Daiwa Europe, noted that the data overall did not suggest much recovery in manufacturing for the period.

“Manufacturing output, which makes up the bulk of production, was broadly unchanged in November, as it was in October,” said Mr Ellis.

“This means that manufacturing as a whole has been treading water for two months.”