Today’s growth

As Alistair Darling predicted, we got the news today that the UK exited recession at the end of last year.

But, what today’s figures also show is that we were right to be cautious about the pace of growth – and that now is absolutely the wrong time to slam on the brakes as the Tories propose.

Two points stood out for me.

First it looks like new growth is broad-based; the two main aggregate components, services and production, both recorded an increase of +0.1%. Manufacturing also saw positive growth, growing by 0.4% and growth in services was led by a 0.4 per cent increase in ‘distribution, hotels & restaurants’. This sub-sector includes retail trade (grown in line with retail sales) and motor trades which both grew on the quarter.

Second, government’s ‘real help now’ made the world of difference. Employment has fallen by 1.7 million less than it would have had the experience of the 1990s been repeated. The Council for Mortgage lenders has twice revised down their forecast for repossessions in 2009, from 75,000 to 50,000, and the corporate insolvency rate has also been much lower than in previous recessions, as initiatives like the Government’s Time to Pay scheme which has helped over 150,000 businesses spread over £4.5bn of tax payments reduce the cash flow pressures on business.

So, now is not the times for immediate cuts to government help. As the Head of the IMF said last week “if you exit too early (from the stimulus steps), then you’ll have the risk of going back into recession,” (Dominique Strauss-Kahn, 18 January 2010, Wall Street Journal).

By the way, on international comparisons it is not surprising that the UK has taken longer to emerge from recession. We have an open economy and a large financial sector. Today’s figures show, again not surprisingly, that the financial services have still not begun to contribute positively to growth.

Plus unemployment remains below 8%. Although we’ve seen other countries experience growth earlier in 2009, unemployment in the US continued to rise in December and the unemployment rate in both the US and the Euro area is at 10%.