UK economy returns to growth

THE UK economy has rebounded from the surprise contraction at the end of 2010, according to new figures.

The Office for National Statistics said GDP in the first quarter of 2011 grew by 0.5%.

The latest figure follows the shock 0.5% contraction in the economy in the final quarter of last year.

Weather was partly blamed for that setback although the ONS said that growth in the economy would have been broadly flat even allowing for snow-related disruption.

The ONS said that overall GDP had now returned to the level of the third quarter of 2011 and increased 1.8% in the first quarter of 2011 compared to the same period last year.

In the first three months of 2011 production output grew 0.4% while services also grew 0.9% although the construction sector fell 4.7%.

Business services and finance and transport and storage and communication were the sectors making the biggest contribution to growth in the last quarter.

Attention will now turn to the Bank of England’s Monetary Policy Committee which may feel confident in raising interest rates if enough members decide the economic recovery is now more firmly established.

Analysts had widely forecast an interest rate rise next month but opinion sharply changed in the wake of figures which showed that CPI inflation had fallen to 4% in March despite the lack of action from the MPC.

Richard Halstead, Midlands region director for EEF, the manufacturers’ organisation, said it was encouraging manufacturing output had maintained its momentum.

“In line with predictions the sector has now posted six consecutive quarters of robust expansion, while the rest of the economy only just made up the ground lost at the end of last year,” he said. 
 
“While a double dip has been avoided the first estimate for Q1 growth is unlikely to settle nerves about the health of the recovery as all sectors of the economy face continuing uncertainties – from government spending cuts and rising costs, to disruptions in global supply chains and euro-area instability – in the current quarter.”