THE Bank of England held back from giving the fragile recovery an extra boost this week, as the economy appears to have narrowly avoided falling back into recession despite a shock drop in manufacturing output in the first months of 2012.
The National Institute of Economic and Social Research (NIESR), one of Britain’s leading economic think-tanks, estimated that the economy missed a recession by the smallest possible margin, growing by a mere 0.1 per cent in the first quarter.
The economy has not recovered fully from the 2007-2009 crisis that left the country poorer and vulnerable to the eurozone’s debt problems, which fuelled a fall in output at the end of last year and raised fears of a new downturn.
A surprise one per cent drop in manufacturing output in February showed that the economy was still on shaky ground after a series of more upbeat business surveys had indicated that a modest recovery was on track.
Bank of England Governor Mervyn King has warned of a long and arduous road back to economic health, predicting a bumpy ride for most of 2012 as the dangers from the euro debt crisis linger and events such as an extra public holiday for the Queen’s Diamond Jubilee distort the course of the economy.
Even a minor technical recession – defined as two consecutive quarters of falling Gross Domestic Product (GDP) – would be a blow for Chancellor George Osborne, who defended his tough austerity plan in last month’s Budget aimed at erasing a huge deficit.
At its monthly meeting on Thursday, the central bank’s Monetary Policy Committee (MPC) left the total of its asset purchases at £325bn and kept interest rates at their record low of 0.5 per cent, a move that had been unanimously expected by analysts.
“Since the end of 2011, when many were extremely concerned about an economic meltdown in the eurozone, the short-term outlook has improved,” said Scott Corfe, economist at economics consultancy CEBR.
“For the UK at least, it looks as though a recession this year will be avoided.”
Official figures for gross domestic product in the first quarter are not due until April 25.
Following a 0.3 per cent quarter-on-quarter fall in GDP in the last three months of 2011, they will determine whether Britain has lapsed back into recession or avoided it.
The pound hit a fresh two-and-a-half month high of 1.21 against the euro on Thursday as worries about the eurozone debt crisis and rising Spanish borrowing costs outweighed weak British data.
Most economists believe the Bank will not expand its quantitative easing programme this year, and the recent output figures did little to change that view.
The government predicts growth of only 0.8 per cent this year.