Britain's economy is expected formally to emerge from recession today, with a consensus among City economists that the figures, due to be released by the Office for National Statistics, will show minimal growth, of perhaps 0.1 or 0.2 per cent during the third quarter. Most put a 30 to 40 per cent chance on the figure being nil.
Such a tiny reading would technically end the British economy's five quarters of contraction that began last spring, and which has seen almost 6 per cent wiped of the value of the UK economy, or about £80bn worth of lost output. However, while it would meet the Chancellor's Budget forecast of growth by the year-end, most observes stress that such feeble growth – itself threatened by higher taxation and interest rates over 2010 – will be nowhere near enough to prevent unemployment rising, house prices suffering further falls and a painful squeeze on living standards and public services.
Further evidence that the economy is far from returning to normal conditions emerged yesterday, with weaker than expected data on retail sales and bank lending.
The Bank of England reported that households are still concentrating on paying off debt rather than spending, and the flow of net lending to British business stayed negative during August. Although large businesses have been able to take advantage of the revival in the equity and bond markets to raise funds, sometimes to repay debt, smaller businesses have not been so fortunate. The Bank's Trends in Lending report said that "business contacts indicated that credit supply remained tight. Lending to small and medium-sized enterprises remained subdued."
The Bank also said that mortgage finance was broadly flat, and that "lenders reported a further reduction in the availability of unsecured credit for households in the third quarter", with credit demand remaining weak.
The Bank for International Settlements in Basel added that cross-border lending – so-called "financial protectionism" – continued to contract, by $300bn in the second quarter of this year.
Before yesterdays news, economists had already been worried that weak manufacturing output data would hold back growth over the period from July to September. The official data on retail sales also suggests that the service sector may also prove weaker than feared. Although up on last year, the ONS said that September's sales volumes were flat on the month, against hopes of a 0.5 per cent boost. Shop sales have stagnated for two successive months, and non-food sales have fallen.
Vicky Redwood, of Capital Economics, said: "Retail won't have contributed to the likely improvement in overall GDP growth in the third quarter. Meanwhile, the outlook for sales remains pretty weak in the light of the looming fiscal squeeze."
Earlier this week the Governor of the Bank of England, Mervyn King, said: "It is likely that in the second half of this year the UK economy will return to positive, if modest, growth."Reuse content