UK economy narrowly avoids recession in fourth quarter

The UK economy appears to have avoided recession as a combination of consumer and government spending outweighed a sharp slump in manufacturing.

The UK economy appears to have avoided recession as a combination of consumer and government spending outweighed a sharp slump in manufacturing.

Total economic output grew by 0.2 per cent in the final three months of 2001, official figures showed yesterday. This was the lowest growth in three years but confounded forecasts of zero growth ­ or even a decline.

For 2001 as a whole, the economy grew by 2.4 per cent ­ almost certainly the strongest of the Group of Seven nations.

"Given what happened elsewhere this is quite impressive," said Danny Gabay, the UK economist at JP Morgan.

The Treasury, which was criticised last year for forecasting growth of 2.25 to 2.75 per cent, was quick to take credit for the performance.

Andrew Smith, the chief secretary, said: "Because of the tough action taken on fiscal policy, the new monetary framework and the decisive action taken by the Monetary Policy Committee, Britain is much better placed than in the past to steer a course of economic stability."

Ian Fletcher, the chief economist at the British Chambers of Commerce, said: "Our economy had everything bar the kitchen sink thrown at it during the last quarter of 2001."The fact that it still grew is testament to some nimble footwork from the Bank of England and the spending power of consumers."

However, the figures showed the gap between the consumer and industrial sectors ­ the so-called two-speed economy ­ had worsened. The preliminary estimate of GDP showed manufacturing industry suffered a "sharp decline". In contrast, service sector growth accelerated over the three months following the 11 September attacks compared with the previous quarter. It rose to 0.9 from 0.6 per cent.

National Statistics, which produced the data, reported strong growth in health and education ­ areas at the heart of the Government's plan to boost state spending.

The report also said there was an "unusually strong increase" in recreation, sport and cultural activities. This echoed a separate report on Thursday showing that Britons spend more of their income on leisure services than on anything else.

The slump in manufacturing, which is currently the worst in a decade, was driven by sharp falls in electrical and optical equipment, metals products and machinery and equipment.

Business leaders are starting to apply pressure on the Government to use the Budget to offer assistance through tax cuts and special allowances.

Economists said the GDP data meant it was likely interest rates would rise this summer.