Belfast Telegraph

Sunday 28 December 2014

Experts fear for ‘fragile’ economy

The UK's fragile economy has limped out of recession — but the weakness of the recovery has fuelled fears of a further slump.

The tentative 0.1% growth in the final quarter of 2009 ended the UK's longest and deepest decline on record, according to Office for National Statistics first estimates.

But it fell far short of expert forecasts of a 0.4% rise and prompted a political storm as Chancellor Alistair Darling defended his growth predictions for the year, while opposition parties questioned his handling of the economy.

Mr Darling insisted that marginal rate of growth in the last quarter underscored the need to maintain support for the economy's fragile recovery.

He “absolutely” stood by his projection of growth this year of between 1% and 1.5% but added that any move to cut spending too quickly would “end up wrecking the recovery”.

Mr Darling said growth was “always going to be moderate” this year.

“There are many bumps along the way, we are not out of the woods yet, so I think my caution is right,” he said.

“What I would say though is these figures, which show modest growth, demonstrate the need for us to maintain support for the economy now, and to do as (shadow chancellor) George Osborne has suggested — to pull the rug from underneath the feet of that recovery — would be a risk I'm not prepared to take.”

His comments are indicative of the dividing line between Labour and the Conservatives which is becoming central to the political debate ahead of this year's general election.

The latest figures show that last year, output slumped 4.8% — the biggest annual drop since 1949 — while the economy has contracted 6% since the recession began in the second quarter of 2008.

The UK is the last of the G7 nations to technically pull out of decline, although the fragile nature of the recovery will heighten fears of a “double-dip” recession with spending cuts and tax hikes looming after the next general election. The figures coincided with fresh forecasts from the International Monetary Fund, predicting the UK will expand 1.3% this year, compared with growth of 2.7% in the US, 1.5% in Germany and 1.4% in France.

Economists had hoped for a much stronger upturn in the ONS figures after survey data had pointed to an increase for both manufacturing and services firms, while the first fall in unemployment for 18 months has also suggested a return to growth.

But the UK's powerhouse services sector — which accounts for more than two-thirds of the economy — only managed 0.1% growth in the fourth quarter, the ONS said.

Experts added that the largest contribution to growth came from areas such as retail and the motor trade, which have been helped by temporary factors such as the Government's cash-for-bangers car scrappage scheme and the planned January rise in VAT.

Daiwa Capital Markets economist Colin Ellis said without these, the economy “stagnated at best”.

“Never has an end to a recession been so underwhelming,” he added.

Economists have forecast that Northern Ireland’s turnaround could lag several months behind the wider UK and local business leaders gave the figures only a cautious welcome.

Northern Bank economist Angela McGowan said the overall recovery was still ‘very fragile’.

“The data will be significant for policy-makers and economists and might even go some way towards rebuilding consumer confidence. However, while the economy has ‘technically’ moved out of recession, the very low growth expected this year will most probably translate into a jobless recovery. Unfortunately, those people who have lost their jobs over the last year and a half will not be able to treat the data as particularly significant for improvement of their job prospects,” she said.

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