Britain out of recession but sterling hit by dollar

STERLING fell sharply against the dollar yesterday after keenly anticipated growth data showed Britain had emerged from recession in the fourth quarter but at a much slower pace than expected.

Gross domestic product expanded by 0.1% between October and December, well below analysts’ forecasts for growth of 0.4% after an 18-month recession that wiped out 6% of output.

“While it’s good news that the UK is out of recession, it is clear the economy is not out of the woods yet,” said David Tinsley, British economist at National Australia Bank.

“It’s not impossible to imagine the first quarter returning to negative growth on the basis of today’s data.

“And further out, the economy has to pick its way across the minefield of consumer deleveraging, constrained bank balance sheets and the forthcoming squeeze of public sector spending,” he said.

Finance minister Alistair Darling said the economy was on a path to recovery, but there was still a lot of uncertainty to the outlook.

He said he would stick with growth forecasts of 1% to 1.5% this year.

The euro hovered near 87 pence against the pound after hitting a session high of 87.53 pence.

Most analysts still predicted the Bank of England would halt its £200 billion (€230bn) asset buying programme next month, but the GDP figures reinforced expectations that any interest rate would stay at the current record low of 0.5% for some time.

“The slow recovery makes normalisation of conventional policy a distant prospect,” analysts at RBC Capital Markets said in a note. The latest growth figures may also increase doubts about the pace of global recovery as Britain was the first G7 country to report GDP figures for quarter four.