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UK closes in on escape from recession – we may even have made it already

posted Dec 6, 2009, 6:05 PM by Yale ReiSoleil   [ updated Dec 6, 2009, 6:09 PM ]
London (The Independent) -- Britain's ailing economy was far closer to escaping recession in the third quarter of the year than previously thought, official data revealed yesterday, raising hopes there will be a return to growth in the fourth quarter of the year.

The new information will also give Alistair Darling, the Chancellor, greater room for a more upbeat assessment of the economy when he presents the pre-Budget report on Wednesday.

There was widespread shock in October when the Office for National Statistics (ONS) said the UK economy had shrunk by 0.4 per cent over the three months to the end of September. Economists had predicted positive growth for the quarter. Last month, the ONS revised its estimate of the third-quarter decline to 0.3 per cent, but yesterday released new data suggesting a much bigger correction was necessary.

The ONS said the construction industry had actually expanded by 2.0 per cent in the third quarter of the year, having previously estimated a decline of 1.1 per cent. While construction is a relatively small part of the economy, the revision was so dramatic that it has had a sizeable effect on the ONS's view of the overall performance of the UK during the third quarter, which it now thinks shrunk by just 0.1 per cent.

Further revisions to the GDP data are still possible between now and 22 December, when the ONS publishes its final third-quarter figure. In theory, if it is forced to revise up its estimates of growth in other sectors, it may even announce that the UK did emerge from recession during the third quarter of the year after all.

That would represent an early Christmas present for Mr Darling, who has faced attacks over his handling of the recession. The Chancellor's embarrassment about the UK's failure to emerge from decline was compounded by the fact that all of the world's leading economies have returned to growth.