UPDATE 5-Britain crawls out of recession but Q4 disappoints

* UK economy grows 0.1 percent in Q4, well below forecasts

* Weak figures cast doubt over recovery, blow for Labour

* Analysts expect interest rates to stay low for some time

(Adds business minister Mandelson)

By Matt Falloon and Sumeet Desai

LONDON, Jan 26 (BestGrowthStock) – Britain only just crept out of an
18-month recession at the end of 2009, suggesting any monetary
tightening remains a long way off and raising fears about the
prospects for recovery ahead of an election due by June.

The Office for National Statistics said on Tuesday gross
domestic product rose by 0.1 percent between October and
December, well below analysts’ forecasts for growth of 0.4
percent and lower than all the predictions in a Reuters poll.

For 2009 as a whole, the economy shrank by 4.8 percent —
the worst yearly performance since records began in 1949.

The Labour government has been banking on a strong bounce
back to growth to help overturn its poor opinion poll ratings
before an election expected in 100 days, but these weaker than
expected figures make a political comeback even trickier.

But business minister Peter Mandelson told Channel 4 News he
expected the preliminary figures to be revised higher
[ID:nLDE60P2D7]. The next estimates are due open Feb. 26 and
could yet be revised upwards or downwards.

Finance minister Alistair Darling said signs of sluggish
growth provided all the more reason to maintain government
spending plans, attacking the opposition Conservatives’ call for
imminent and tough action to reduce a record budget deficit.

“You can see there is a lot of uncertainty and therefore you
would expect as you come out of recession for things to
fluctuate,” Darling said.

“I think we are now on a path to recovery … you need to
maintain your support, don’t pull the rug from under our feet at
the very time that we can see recovery.”

Darling said he was sticking with his forecast that the
economy would grow by up to 1.5 percent this year.

Sterling tumbled and gilt futures rose after data, which
also showed output fell 3.2 percent from the same period a year
ago. From peak to trough, the economy contracted six percent —
far worse than the downturns of the early 1980s and 1990s.

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For a graphic, click on: http://link.reuters.com/jak75h

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“We know there are significant headwinds in Q1,” said Ross
Walker, an economist at RBS Financial Markets. “Overall, the
headline is disappointing but actually the underlying picture
looks more worrying.”

Most analysts predict the Bank of England will halt its 200
billion pound ($323 billion) asset buying programme — designed
to pump money into the economy — next month, but Tuesday’s GDP
figures reinforced expectations that any interest rate rises
from the current record low of 0.5 percent are many months away.

DEFICIT CUTS AWAIT

Nonetheless, whichever party wins the election will have to
enact dramatic fiscal tightening at some point to rein in a
record budget deficit, which will be a major drag on growth.

The government has a four-year plan to halve the deficit —
set to top 12 percent of GDP this year. But the Conservatives,
ahead in opinion polls, say that is inadequate and pledge to
start tightening fiscal policy this year, earlier than Labour.

“After this great recession, any signs of growth are
welcome,” said Conservative economics spokesman George Osborne.

“We urgently need a new model of economic growth that
includes a credible deficit reduction plan that keeps mortgage
rates low, creates jobs and doesn’t choke off recovery.”

While Prime Minister Gordon Brown has argued his decisions
have helped Britain weather the global storm, the UK is the last
of the major economies to exit the downturn.

The latest figures may also increase doubts about the pace
of global recovery as Britain is also the first G7 country to
report GDP figures for the fourth quarter.

Evidence from the euro zone suggests its economy may have
grown at a glacially slow rate in the last quarter of 2009 and
the first quarter of this year.

Britain’s recession was the longest on record and
policymakers expect a long slog to get the economy back to
pre-crisis levels, warning the road to recovery will be rocky.

The BoE has said the extent of any fiscal consolidation will
have an impact on monetary policy and analysts say sharp cuts in
government spending and big tax rises may result in interest
rates having to stay lower for longer to compensate.

Some economists agreed with Mandelson that preliminary
estimates of GDP could be revised upward but there are also
concerns about the strength of private demand, which will need
to improve greatly to establish a sustainable recovery.

Stock Market News

(For latest on British politics, click on [ID:nUKVOTES])
(Editing by Mike Peacock and Andy Bruce)

UPDATE 5-Britain crawls out of recession but Q4 disappoints