Britain's economy made only a sluggish start to 2011 as it crawled back from a slump at the end of last year, snuffing out chances of a Bank of England rate rise next week and hampering the government's austerity drive. Prime Minister David Cameron took some heart from healthy growth in key sectors such as manufacturing, though opposition politicians and businesses warned that spending cuts, tax rises and high inflation would hit consumers.
Overall output expanded 0.5 percent in the first three months of the year after declining by the same amount at the end of 2010 as construction posted its biggest drop since the height of Britain's worst recession since World War Two. After a solid recovery for most of the past year, Britain's economy has effectively flatlined since September and is now trailing well behind its developed world peers. "Underlying activity in the economy remains pretty much stagnant," said Capital Economics economist Vicky Redwood.
Wednesday's figures set the stage for a tough 2011 as the government starts in earnest with a four-year programme of public spending cuts. The recovery in the first quarter was weaker than either the Bank of England or the Office for Budget Responsibility had pencilled in and raises the risk that government tax revenues will fall short of target.
Most BoE policymakers want to see a sustainable recovery before tightening monetary policy, meaning interest rates are likely to stay at record lows at least until July despite inflation running at twice the bank's 2 percent target. Key sectors of the economy, such as manufacturing and services grew at a healthy pace, recording progress of 1.1 and 0.9 percent respectively. Business services and finance expanded by 1.0 percent, its best reading since 2007. Construction fell 4.7 percent, its biggest fall since the height of Britain's recession in the first quarter of 2009. But the extent of the decline, not corroborated by survey evidence, aroused suspicions that revisions were on the cards.
Comments
Comments are closed for this article.