LONDON (Reuters) - The economy grew faster than previously estimated in the last three months of 2009 but the 18-month recession from which it emerged turned out to be deeper, revised official figures showed Friday.
Chancellor Alistair Darling welcomed the upward revision of fourth quarter GDP growth to 0.3 percent from an originally reported 0.1 percent but said there were still big risks and that support for the economy could not be withdrawn yet.
When to cut public spending has emerged as one of the biggest dividing lines ahead of an election expected on May 6, with the Conservatives saying the record deficit needs to be brought down quicker than the Labour government plans.
Gilt futures fell after the stronger than expected Q4 result — analysts had predicted a more modest upward revision to 0.2 percent — while sterling gained and then fell back as the data offered a mixed message for policymakers.
The central bank had expected an upward revision to Q4 growth but may now judge there is even greater slack in the economy.
The Bank is next week expected to hold interest rates steady at a record low of 0.5 percent and keep its asset-buying program to boost the economy on hold.
“I don’t think we’re out of the woods,” said Adam Chester, economist at Lloyds TSB Corporate Markets. “The first quarter is now going to be the focus and given the weak January we have had and the bad weather, there is still a distinct possibility that we could dip back into the red in the first quarter.”
The upward revision to Q4 GDP was the result of actual data in December turning out much stronger than the estimates official statisticians had pencilled in.
The service sector grew by 0.5 percent, five times faster than initially estimated. Growth in industrial output was also revised up to 0.4 percent from an initial 0.1 percent.
The pace of growth was also helped by a big slowdown in the pace of destocking by companies. Stock levels fell by 2.784 billion pounds in the fourth quarter compared to 4.212 billion in the third. This change added 0.5 percentage points to GDP growth in the fourth quarter, the ONS said.
Despite the latest growth, GDP was still 3.3 percent lower than a year earlier, underlining Bank Governor Mervyn King’s point that it will take a long time for the level of output to return to what it once was before the crisis.
The latest revisions meant that the total output wiped out in the recession was 6.2 percent, more than the 6 percent previously estimated, and marking the deepest recession since World War Two.
“Nonetheless, the figures should help to ease concerns over UK growth prospects,” said Philip Shaw, chief economist at Investec.
“(Q1) is going to be a difficult quarter to read, given that the numbers for January and perhaps February have been hit by bad weather.