UK’s 0.3% GDP growth in Q1 welcomed by business groups

Business groups have given a cautious welcome to the announcement this morning that the UK has avoided a triple-dip recession, with the economy growing by an estimated 0.3% in the first quarter of 2013.

The increase was higher than expected and John Cridland, director general of the CBI, said it confirms the organisation’s view that 2013 will see real growth. After the pick-up in the services sector, the economy now needs a recovery in manufacturing output in the coming months, he added.

Cridland concluded by saying that the government must build on the emerging signs of confidence by getting behind Britain’s entrepreneurs and exporters.

David Kern, chief economist at the British Chambers of Commerce, pointed out that, although services output is now above its pre-recession levels from 2008, both construction and manufacturing are still lower.

“The main priority remains combining a realistic deficit cutting programme with policies that make it possible for the economy to achieve sustainable growth,” he said.

Meanwhile, Terry Scuoler, chief executive of EEF, the manufacturers’ organisation, highlighted the fact that the economic challenges faced by the UK are shared by much of the rest of the world, particularly Europe, and are “hampering manufacturing’s efforts to export our way to growth.”

Chancellor George Osborne responded to the GDP announcement by saying that the figures are an “encouraging sign” although Ed Balls, the shadow chancellor, argued that the economy is only “back to where it was six months ago.”

In its preliminary estimate for the quarter the Office for National Statistics (ONS) noted that GDP was 0.4% higher in the first three months of 2013 than in the third quarter of 2011, which means that it has been broadly flat over the last 18 months.

The most significant contribution to GDP growth in the first quarter of 2013 came from services, and there was a smaller contribution from production. These upward contributions were partly offset by a decline in construction output.

Overall, the bad weather in this year’s first quarter is thought to have had a limited impact on GDP growth. Evidence suggests that the snow and low temperatures reduced retail output in January and March but boosted demand for electricity and gas in February and March, which resulted in higher output in the energy supply industries.

Five years ago, before the global financial crisis led to a sharp fall in output, the UK economy peaked in the first quarter of 2008. The lowest level was registered in the second quarter of 2009. GDP fell 6.3% from peak to trough, the ONS said. In the first quarter of 2013 the UK’s GDP was estimated to be 2.6% below the 2008 peak.

UK chancellor confirms lower expectations for economic growth

The UK economy is now expected to contract by 0.1% in 2012 and then grow by 1.2% in 2013, the Office for Budget Responsibility announced today.

This is a significant downgrade from predictions made by the OBR in March, when it expected the economy to grow by 0.8% this year and 2% next year.

In a report published to coincide with Chancellor George Osborne’s Autumn Statement in the House of Commons, the OBR also revised upward its forecasts for public sector borrowing over the next five years.

According to the OBR, tax revenues will be lower because of the weaker outlook for the economy. As a result, the government is no longer likely to achieve its target of reducing public sector net debt by 2015-16.

The chancellor has now pushed back the target by a year, saying that debt will begin to fall as a proportion of national income by 2016-17. Osborne is also extending austerity measures by another year to 2018 in order to close the budget deficit, although he claimed that such measures would be implemented “fairly” with savings made from bureaucracy and a greater contribution from the richest households and those on benefits.

He pointed out that people on out-of-work benefits had seen their incomes rise at twice the rate of working people, and said that over the next three years benefits such as jobseekers allowance and child benefit will increase by just 1% per year. There will also be a further cut in tax relief on pension contributions, with the the amount that can be paid into a pension each year with tax relief reduced by GBP10,000 to GBP40,000 and the lifetime allowance cut to GBP1.25m from GBP1.5m from 2014-15.

Among other measures announced in the Autumn Statement, the chancellor said that he would increase efforts to collect tax from multinational companies operating in the UK, cut corporation tax to 21% from April 2014, cancel the planned fuel duty rise and lift the personal allowance – the amount that people can earn before paying income tax – by more than planned to reach GBP9,440 from April next year.

UK business groups expect economy to shrink this year

Leading business groups in the UK have downgraded their economic forecasts and called for action from the government.

The British Chambers of Commerce (BCC) announced today that it expects the UK’s gross domestic product (GDP) to shrink by 0.4% in 2012, down from its earlier forecast for growth of 0.1%.

It claimed that the prospects for recovery are complicated by headwinds from the slowing global economy and the continuing crisis in the eurozone, as well as the austerity drive in the UK. In addition there are new risks from recent rises in food and oil prices, the BCC said.

Next year the organisation expects the UK economy to show growth of 1.2%, a decrease from its earlier prediction of a 1.9% rise in GDP.

The BCC has urged the government to adopt a hybrid strategy that delivers both deficit reduction and growth. It said that swift action is needed to support business investment, incentivise job creation and stimulate construction, particularly in the housing sector, and that this can be achieved by changing spending priorities or with limited extra borrowing.

“Politicians need to get some political backbone and show leadership,” said BCC director general John Longworth.

Yesterday another business organisation, the Confederation of British Industry (CBI), cut its GDP forecast for 2012, saying that it now expects the economy to shrink by 0.3% in 2012. This is a significant fall from the previous forecast in May of 0.6% growth, reflecting a more negative first half and a more modest rate of growth in the second half than was expected in May.

The CBI expects growth to return to the UK economy towards the end of the year and it forecasts GDP growth of 1.2% in 2013, revised down from its previous estimate of 2%. This matches the BCC forecast. The CBI noted, however, that the ongoing global uncertainty means there is a risk that growth could be lower.

Despite the coalition government’s austerity measures, both the CBI and the BCC have predicted that the government will end up borrowing more in 2012 and in the coming years. The BCC believes that public sector borrowing will overshoot the target by GBP14bn to GBP17bn in each year until 2015 and it said that the task of eliminating the government’s structural budget deficit will probably take two to three years longer than envisaged.