UK economy grew by 0.5pc in 1st quarter

THE UK economy grew by 0.5 per cent in the first-quarter, avoiding a double-dip recession and recovering from a 0.5 per cent contraction in the final three months of 2010.

The headline figures suggest the economy has flatlined over the last six months, although economists were sceptical about the reliability of early official statistics, which are normally subject to substantial revisions. Many believe the underlying strength of the recovery is much stronger than the numbers imply.

Construction output fell by a massive 4.7 per cent, the Office for National Statistics said, while the output of utilities like electricity and gas fell 3.5 per cent on the previous three months, when a particularly cold December boosted demand.

But economists were highly suspicious about the construction figure, which has swung wildly since early 2010, when the ONS introduced new monthly data. According to the ONS, construction surged by a staggering 11.2 per cent in the second and third quarter of 2010 – the best result for 45 years – before plunging seven per cent in the following six months. Although construction accounts for just six per cent of the economy, it shaved 0.3 percentage points off first-quarter growth.

Conversely, combined services and industrial output – which account for 93 per cent of GDP – rose by 0.8 per cent in the first three months of the year, more than recouping a 0.4 per cent fourth quarter loss.

Manufacturing grew by an impressive 1.1 per cent; government services grew 0.7 per cent; and transport and communications recovered strongly after snow affected business in the fourth-quarter.

Michael Saunders, an economist at Citi, said the headline growth figure “did not quite reflect the economy’s underlying momentum”.

He added: “It is not usually advisable to construct figures that simply exclude all the weak bits, but there are grounds for regarding the falls in construction and utilities as erratic.”

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said “the figures for the construction industry just look bizarre.”

OSBORNE: THIS CHANCELLOR IS NOT FOR TURNING

CHANCELLOR?George Osborne yesterday said he would “stick to the course” of spending cuts to rein in Britain’s £150bn deficit, despite early official statistics suggesting the economy has stagnated over the last six months.

He said: “The good news is the economy is growing and you see sectors like manufacturing doing particularly well.

“Of course, around the world we are facing some choppy economic conditions. We’ve got one of the highest [deficits in the world], but I think that reinforces our determination to stick to the course.”

But shadow chancellor Ed Balls said Osborne was “the only person in the whole country who will think that this is good news”.

He added: “A flatlining economy is exactly what we don’t need to get unemployment down, to get our deficit down.”