UK economic growth disappoints as election looms

[April 23, 2010]  LONDON (AP) -- Britain's economy grew 0.2 percent during the first quarter of the year, statisticians said Friday, extending the recovery from recession but disappointing expectations of a stronger rise ahead of a May 6 general election.

The Office for National Statistics said growth continued in the January to March quarter compared with the previous three months, thanks mostly to activity in business services and finance, but the rate slowed from the 0.4 percent recorded in the final quarter of last year, when Britain broke out of an 18-month recession.

The economy has been the biggest issue in the campaign leading up to Britain's national election, now less than two weeks away, and the modest growth will come as a disappointment to Prime Minister Gordon Brown as he campaigns for re-election.

Friday's report is the first estimate of first quarter GDP, and the figure may be revised as statisticians work through more data on the economy's performance. The first estimate of fourth quarter growth, for instance, was 0.1 percent but the final figure was 0.4 percent.

The report, however, is the last snapshot of the economy before the May 6 vote.

The GDP estimate comes two days after the statistics office disclosed that Britain's unemployment rate had risen to 8 percent in the December-February quarter, the highest figure in 16 years -- a sobering reminder that the budding recovery has not trickled down to ordinary working people.

On Thursday, official data confirmed that Britain closed out its fiscal year on April 5 with record borrowing of 152.84 billion pounds ($235.9 billion), or 10.9 percent of gross domestic product.

Although that was better than the 167 billion pounds forecast by the government, it was way above the 86.91 billion pounds deficit recorded in 2008/09.

Business services and finances, the dominant sector of the U.K. economy, were the biggest contributor to first-quarter growth, the ONS said. The smaller manufacturing sector posted a gain of 0.7 percent.

The key economic arguments between the governing Labour Party and the opposition Conservative Party have been about what to do to tackle the ballooning deficit and how quickly.

Brown has argued that the economy still needs government support -- and that means more borrowing. Conservative Party leader David Cameron has called for quick action to cut spending, and he has opposed the government's plan to raise national insurance taxes.

Conservatives have also argued that a surge in support for the Liberal Democrats could leave no party with a majority in Parliament and thus worsen the nation's ability to deal with the economy.

"After the longest recession we now have a jobless recovery from a weak government," said Conservative George Osborne, who would take over as Treasury chief if his party forms the next government.

"What Britain doesn't need now is a jobs tax that would kill the recovery or a hung parliament that would lead to economic paralysis," Osborne said.

Jonathan Loynes at Capital Economics commented that the GDP figures "are a clear disappointment for the economic outlook, but their political implications are ambiguous."

"On the face of it, the numbers are a blow to the government. But it will no doubt argue that the weakness of the recovery undermines the Conservatives' plans to implement an earlier and bigger fiscal tightening. Either way, the figures underline again the fragility of the economic outlook," Loynes said.

In its World Economic Outlook published earlier this week, the International Monetary Fund came down on the side of more state spending.

"Governments have acted to provide substantial stimulus in 2009, but it is now apparent that the effort will need to be at least sustained, if not increased, in 2010, and countries with fiscal room should stand ready to introduce new stimulus measures as needed to support the recovery," the IMF said.

"At the current juncture, the main priority is to avoid reducing stimulus prematurely, while developing and articulating coherent exit strategies," the IMF report added.

[Associated Press]

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.