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Comment: UK exits recession – slowly

Azad Zangana, European Economist at Schroders, cautions against expectations of a swift UK recovery.

Preliminary estimates of GDP growth for between October and December 2009 showed the UK economy grew by 0.1%, ending the longest and deepest recession since the Second World War.
The 0.1% rise in GDP growth in Q4 was far lower than city consensus of 0.4%, though preliminary estimates only have about 40% of the final information required to produce a final estimate, and are subject to revisions.
The latest estimate provides end-of-year annual growth. The worst performing sectors of 2009 was the manufacturing sector, contracting by (-)10.8%, while the construction sector shrank by (-)10.5%. The best two performing sectors were the Government sector and the Distribution, hotels & restaurants sectors, contracting by (-)0.8% and (-)4.6% respectively.
Let’s be clear, the UK has finished last in the race to exit recession, six months behind Germany and France. Today’s data indicates the start of an extremely fragile recovery, which has been highly reliant on support from fiscal and monetary policy.
We estimate it will be at least three years before the UK returns to the level of output achieved in 2007, and as a result the Bank of England will keep interest rates on hold, at least until there is some evidence of the recovery gathering pace.
The UK is particularly prone to double-dip recessions, and early fiscal or monetary policy tightening could easily push the UK economy under the water again.


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