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Q1 GDP figures bring mixed emotions

Britain registered just 0.5 percent growth in its gross domestic product for the first three months of 2011.

Yet the GDP figures for the first quarter of this year eliminate the threat of a double-dip recession which should incite a sigh of relief for many.

The increase of 0.5 per cent shows the economy is growing again after stalling in the final quarter of 2010. However, it has only bounced back to where it was last September, before the end-of-year contraction of 0.5 per cent. It means the economy is at a standstill – and is still 4 per cent smaller than it was three years ago, at the start of the banking crash.

The slight growth for Q1 was because of a sharp decline in the construction sector, which slipped 4.7 percent for the quarter. Services, which comprise 75 percent of the British economy, grew only 0.9 percent, and manufacturing, which accounts for 12.8 percent of the economy, expanded at 1.1 percent.

The services sector's slight recovery was driven by business services such as consulting, finance and transportation.

The zero growth for the past six months excluded the impact of the snow in December, which caused the closure of British airports and a standstill of the general economy.

The Q1 data is also below the 0.8 percent GDP growth rate forecast by the Office for Budget Responsibility. With the figure, it places Chancellor George Osborne’s deficit reduction target of $183 billion (GBP 122 billion) at risk because it is based on an economic growth rate of 1.7 percent for 2011. But the Q1 trend shows only a 1.5 percent GDP growth likely be registered for this year.

Prime Minister David Cameron said the Q1 GDP data showed positive growth and an indicator the British economy was improving. Cameron dismissed criticisms that the coalition government’s weak handling of the economy is the reason behind the flat growth rate the past six months.

Shadow Chancellor Ed Balls said the Conservative-led government’s policies had choked off the recovery, when it should have been secured and boosted unemployment too.

Elsewhere John Cridland, CBI Director-General, said,"We are seeing a modest rebound in economic growth, recouping the loss in output caused by the bad weather in the fourth quarter of last year. Growth of 0.5% in the first quarter is in line with our expectations and, while encouraging, it does reaffirm our view that the recovery remains slow and sluggish."

"The main reason the growth figures were not stronger is the contraction in construction, with the overhang into January from the bad weather. Februarys construction figures show some recovery", Cridland stated.

Commenting on the figures, Graeme Leach, Chief Economist at the Institute of Directors said, "The preliminary GDP figures are a very mixed bag with grounds for both optimism and pessimism. Pessimists point to the fact that GDP is stagnant with output unchanged over the past 6 months. This is very much in line with the IoDs long held view that this recovery will be more L than V shaped. Todays GDP numbers add further weight to the case against an interest rate rise. But the optimists can not be ignored either. Leaving aside the construction sector which contracted sharply overall services output rose strongly (by 0.9 per cent), although this did follow a decline of 0.6 per cent in the previous quarter.

Leach added, "We shouldn't place too much emphasis on the Q1 data. The more important figure will be Q2 when we begin to see the squeeze on real incomes really kick-in and what effect this has on consumer spending, together with the implementation of the public spending squeeze."

For more information on how GDP is calculated take a look at the Wikipedia article here.

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