Britain is heading out of recession, says influential think-tank NIESR - Times Online




Britain is heading out of recession, says influential think-tank NIESR




The recession was declared over by the country’s leading economics think-tank yesterday after it released upbeat estimates showing that growth in GDP resumed in April and May.

The upbeat verdict that Britain’s slump is at an end came from the National Institute of Economic and Social Research after official figures revealed the first gains in manufacturing output for 14 months, adding to a recent spate of signs of recovery.

Estimates of the economy’s overall performance by the institute, based on the manufacturing figures, indicated that GDP bottomed out in March and began to rise again in April and May.

Martin Weale, the institute’s director, said he believed that the recession was now over “as far as I can tell”.


“There has been much less downward momentum than we expected,” he added.

The institute’s projections, which have proved highly accurate in the past, chime with the conclusion of a growing number of City economists who now predict that the recession will end in the coming quarter, with some arguing it is already over.

Official GDP data for the present quarter (Q2) will not be published until July 24, and the City will judge the recession to have ended, at least temporarily, if these confirm growth.

Mr Weale stopped short of forecasting that this formal confirmation will appear, however.

He said that since official figures are worked out on a quarterly average, rather than on a monthly basis, they would probably show only that the economy stagnated, with zero growth.

The formal end to recession would then only come in the third quarter as a clear rise in GDP emerged, but the institute said that this made little difference in practice. “The monthly figures are inevitably erratic but the picture is coherent with the broader picture of stabilisation which has emerged since we first suggested that the output (GDP) had stopped falling on 13 May,” it reported.

If the institute is proved right, then the present recession will have seen the economy shrink by about 5 per cent since it began last May and ended in March. This would make it more severe than the early Nineties recession but less severe than that of the early Eighties.

Many economists still fear, however, that recovery could founder and give way to a “double dip” downturn.

Top Bank of England officials sounded renewed calls for caution over the outlook yesterday.

Kate Barker, an external member of the Bank’s Monetary Policy Committee, cautioned that it was not clear whether the pick-up in the economy would be sustainable.

Andrew Sentance, another MPC member, warned that a sustainable recovery could be endangered if banks fail to improve the flow of credit. “The recovery will need to take place with a banking system which will not be firing on all cylinders,” he said.

Despite such doubts, the institute’s findings will be hailed by the Treasury and No 10 as a much-needed boost for the Government, and as a vindication of the Chancellor’s predictions of recovery.

Optimism over prospects will be reinforced by the improved news from industry. Manufacturing output rose by a bigger-than-expected 0.2 per cent in April, with revised data showing a similar gain in March, marking the first back-to-back output gains since the beginning of last year.

James Knightley, economist at ING, said: “It is looking increasingly possible that the UK could lead the rest of the G7 out of technical recession.”

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