UK economy still vulnerable

Britain's recession was deeper than estimated previously, official statisticians said Monday, as they confirmed that the economy grew by only 0.3 per cent in the first three months of the year.

Britain entered recession in the fourth quarter of 2008 and exited in the last quarter of 2009.

However, analysts said details of Monday's report raised questions about how robust the recovery is.

"The domestic side of the economy looks very vulnerable," said Hetal Mehta, chief economist for Ernst & Young's ITEM Club.

The Office for National Statistics said GDP fell by 6.4 per cent from peak to trough during the recession, worse than the 6.2 per cent drop reported previously.

Furthermore, the recovery seems to have been more dependent on temporary stimulus measures than earlier estimated.

Government spending, earlier reported to have risen by half a per cent in the first quarter, actually rose 1.5 per cent, Monday's figures showed.

A rise in investment of 4.6 per cent was boosted by a 15 per cent increase in government investment, the largest since the start of the recession.

Consumer spending fell by 0.1 per cent, the household saving ratio dropped from 7.2 per cent in the fourth quarter to 6.9 per cent, and the net trade deficit rose from £7.4 billion to £10.4 billion.

"The impact of strong government spending, ahead of the election period, was very visible. The forthcoming era of austerity will soon consign increases of these magnitudes to the annals of history," said Philip Shaw, Investec's chief economist.

"The fact that sterling's significant depreciation has so far failed to boost net trade is worrying.

And since the eurozone has plunged back into turmoil, and global growth may be slowing down, there are increasing risks to UK export demand," said Mehta, who nonetheless expected second-quarter growth to accelerate to 0.5 per cent or better.

"Today's releases highlighted the fragile nature of the recovery so far," said Vicky Redwood, senior UK economist at Capital Economics.

"Overall, then, we still doubt that the economy is in a good position to withstand the fiscal squeeze," Redwood added.

- AP