Economic group calls end of downturn

Published: June 11 2009 03:00 | Last updated: June 11 2009 03:00

The first growth in industrial output in more than a year led a respected research group to say the recession passed its trough in March, with the UK economy returning to growth in April and May.

The economy grew by 0.1 per cent in May and by 0.2 per cent in April after contracting by 0.5 per cent in March, said the National Institute for Economic and Social Research.

Martin Weale, director of the NIESR, said the recession had ended "as far as I can tell". He added: "There has been much less downward momentum than we expected."

Overall, NIESR reported that the output of the UK economy fell by 5 per cent between the beginning of the recession in May 2008 and March of this year, leaving the contraction worse than that of the early 1990s, but not as bad so far as the early 1980s recession.

Its verdict that the recession had bottomed out came after industrial production - which includes manufacturing, energy extraction, mining and utilities output - rose by 0.3 per cent in April for the first time in 14 months.

Official data from the Office for National Statistics yesterday showed manufacturing production rose by 0.4 per cent over March and April, albeit after a decline of almost 14 per cent over the previous year.

Other business surveys have recently suggested that the services sector , which makes up about three-quarters of the UK economy, has also returned to modest growth.

The manufacturing data suggest that the second quarter from April to June is likely to see at worst only a small fall in gross domestic product, and may even see growth. That would suggest an earlier return to expansion for the economy than expected by the Treasury, after Alistair Darling, chancellor, predicted in the Budget that a recovery would not begin until the fourth quarter, as did many City economists.

But there are widespread fears that, after stabilising as companies run low on stocks and are forced to increase orders, the economy could take another downwards slide, because consumer and business spending remain weak.

Kate Barker , a member of the Bank of England's interest rate-setting committee, echoed those concerns in an interview with a local newspaper yesterday.

"Some areas of retailing are still doing reasonably well and manufacturing orders are starting to come back, but whether that's a stocking issue or a turn up in final demand isn't so clear," she told the Leicester Mercury . "I think there's a lot of concern about what's going to happen beyond this pick-up."

The improvement in industrial output came as trade figures suggested levels of demand were improving more quickly in the UK than abroad. The trade deficit in traded goods excluding oil jumped to £7bn ($11bn, €8bn) in April, from £6bn in March, as exports rose by less than imports.