Britain to exit recession, but faces ‘bleak’ recovery

An end to Britain's longest recession on record will likely be confirmed this week but recovery for the debt-ridden nation -- facing an election this year -- will be far from smooth, economists warned.

The Office for National Statistics will on Tuesday publish data expected to reveal that Britain exited recession in the fourth quarter of 2009, analysts have widely forecast.

A return to growth between October and December last year after six quarters of negative output will see Britain following all other major economies out of recession. Economists predict growth of 0.4 percent in the fourth quarter.

However, the future for the British and wider global economy is far from rosy, with the IMF and the United Nations recently warning of a possible renewed or "double-dip recession" this year.

Those worries have been heightened in Europe, where several nations -- notably Greece and Portugal -- are struggling to cope with soaring public debt.

"It's definitely worth pointing out that, even if we do exit recession, the hard work will only just be beginning," said Colin Ellis, an economist at Daiwa Capital Markets Europe.

"Shrinking the massive budget deficit, getting private sector employment growing and generating genuine wage growth will be big challenges over the next few years."

Ellis also told AFP: "There is a risk of a double-dip (recession) during 2010."

British state borrowing worsened to a record deficit in December, official data revealed last Thursday, sparking speculation about public spending cuts and taxation hikes in the months ahead.

Britain has borrowed 119.9 billion pounds (136.7 billion euros, $193.3 billion) in its current financial year which began in April, compared with 63.6 billion pounds recorded at the same stage of last year.

The government meanwhile predicts that it will have to borrow a record 178 billion pounds during 2009/2010.

The state of Britain's troubled economy has become the key battle ground ahead of a general election due by June and which is likely to see Prime Minister Gordon Brown's Labour Party defeated by the main opposition Conservatives, according to recent polls.

Whichever party wins power, Britain faces a decade of economic pain, experts warned.

"The UK economy has moved out of a decade of debt and into a decade of painful readjustment," analysts at financial group Ernst and Young warned in a key report published earlier this month.

"After years of relying on domestic spending and borrowing the economy now needs to rebalance towards saving and exporting, or risk stagnating," said the study by the group's Independent Treasury Economic Model (ITEM) Club.

Gross domestic product (GDP) will meanwhile "struggle" to reach 1.0 per cent this year, they said.

"The UK is facing another challenging year," added chief economic adviser Peter Spencer.

"We are no longer in a position to borrow -- the massive debts that we racked up in the last decade now need to be repaid. The consumer is completely cashed out -- with consumer spending likely to increase by just 0.4 percent this year."

The economy, which is also struggling with high unemployment caused by the financial crisis, has contracted for six quarters in a row -- its longest recession since records began in 1955.

Finance minister Alistair Darling recently admitted that Britain's recession would be deeper than thought -- with the economy predicted to have shrunk 4.75 per cent in 2009 compared with a prior official estimate of 3.5 per cent.

The nation's economy is expected to grow by 1.0-1.5 per cent in 2010, Darling added, matching his previous forecast.

 

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