UK economic growth is weaker than expected

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The Independent Online

The fragility of the UK's recovery was highlighted today as official estimates showed weaker than expected economic growth in the first three months of 2010.

A 0.2 per cent expansion between January and March marks the second quarter of tentative growth in output, but is lower than the 0.4 per cent seen in the final three months of 2009.

The Office for National Statistics' (ONS) initial estimate, which reflects the disruption caused by January's wintry weather, is less than economists predicted and is likely to come as an election blow for Prime Minister Gordon Brown.



The ONS said there was anecdotal evidence that Arctic weather at the beginning of the year had hit output growth, but said it could not quantify the extent of the impact.

Experts had predicted a 0.4 per cent expansion in the first quarter, but were cautious about the uncertainties posed by the snow in January.

Today's figures come after data showing unemployment rising to a 16-year high of 2.5 million, as well as sluggish retail sales underlining the fragility of the economy's return to health.

But the ONS preliminary estimate is based on less than half the data needed to show a complete picture and could well be revised at a later date.

Economic growth in the last three months of 2009 - which marked the end of six quarters of painful recession in the UK - was revised upwards from the initial estimate.

Gross domestic product (GDP) for the first quarter decreased 0.3 per cent compared to the same period a year earlier - the strongest figure since the third quarter of 2008 when year-on-year output was up 0.2 per cent.

Output in production industries strengthened 0.7 per cent in the first quarter, compared to 0.4 per cent growth in the previous quarter.

This is the highest growth for production since the first quarter of 2006, when output in the sector expanded 1.6 per cent.

The ONS said January's snow did affect the data, but could not give a detailed assessment of the impact.

Service industries, which make up 76 per cent of output, increased 0.2 per cent in the period.

The ONS said business services and finance accounted for the largest contribution to positive growth in the quarter.

Total production, transport, storage and communication, and government services also helped the positive movement.

But growth was weighed by decreases in construction, which fell 0.7%, hotels and restaurants and distribution.









For the Tories, shadow chancellor George Osborne said the figures underlined the dangers of going ahead with the Government's planned increase in National Insurance contributions.

"After the longest recession, we now have a jobless recovery from a weak Government," he said.



"These figures are below expectations and they come in a week when unemployment went up again and the Government borrowed more than ever before.



"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."









ING economist James Knightley said he continued to expect growth of 1% this year and 1.5% in both 2011 and 2012 - lessening the chances that the Bank of England will raise interest rates before the end of this year.

He said: "We remain cautious on the UK recovery story. Confidence is falling, real wage growth is negative and with fiscal consolidation set to kick in over coming quarters, the household savings ratio will have to fall sharply in order for the household sector to generate any growth in spending."



Hetal Mehta, economic adviser to the Ernst & Young ITEM Club, said there was a "fair chance" of an upward revision to today's figures, particularly as other surveys have been more positive in recent weeks.



But she added: "It does seem that following the bounce back in February from the fall in output in January, momentum in the economy is waning.



"Downside risks to economic growth remain, not least the extent of the fiscal tightening we will see after the election. We maintain that growth this year will be around 1%."

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