UK GDP grows 0.5% in first quarter of 2011

George Osborne hails latest figures as good news, but Ed Balls says economy is ‘flatlining’ and urges government to rethink its deficit reduction plans The chancellor, George Osborne, was urged to “get his head out of the sand” as figures showed the UK economy was “broadly flat” after growing by 0.5% in the first three months of 2011. The Office for National Statistics (ONS) released a preliminary estimate showing that gross domestic product (GDP) – a broad measure for the total economy – grew by 0.5% in the first quarter of the year following an unexpected drop of 0.5% in the final weather-hit quarter of 2010. But the ONS warned that underlying growth was broadly flat. Osborne and the prime minister, David Cameron, hailed recorded growth, which is subject to revision, as “good news” and proof that the government has set the “right economic course” for the country. But Ed Balls, the shadow chancellor, seized on the figures as proof that the economy is “flatlining” and urged Osborne to rethink the deficit reduction programme, which he said was “choking” recovery. The Confederation of British Industry said the data confirmed that the economy remains “slow and sluggish”. Economists previously warned that growth of less than 1% in the first quarter would be disappointing, and the lacklustre performance will raise serious concerns over the economy’s ability to withstand the coalition government’s deficit-cutting austerity measures. The Treasury said it was “good news that the economy has returned to growth”. In a published statement, Osborne’s department said: “Manufacturing is growing strongly, the economy has created thousands of jobs since the turn of the year, and borrowing is down. “The government has always expected the recovery to be choppy. But together with continued reminders around the world of the risks facing countries that do not deal with their debts and deficits, today’s data shows that the government has set the right economic course.” Downing Street said the prime minister echoed the chancellor’s words, with a spokesman adding: “It is good news.” Balls urged Osborne to “get his head out of the sand” over an economy he said had “flatlined” since the autumn. “If George Osborne thinks zero growth over six months is good news and a sign that the recovery is on track, then he is out of touch and out of his depth,” Balls said. “By making a political choice to cut further and faster than any other major economy, this Conservative-led government has choked off the recovery when it should have been secured and pushed up unemployment, too. “In the six months since George Osborne’s spending review and VAT rise, the economy has ground to a complete halt and not grown at all. “In contrast, in the previous six months the economy grew by 1.8%. Moreover, the economy has flatlined before the bulk of the spending cuts and tax rises have kicked in.” He added: “Families know that cutting too far and too fast is hurting, but now we know it’s not working either. George Osborne can’t keep making excuses – it’s not the wrong kind of snow that’s to blame, it’s the wrong kind of policies. He needs to think again before it’s too late.” The sluggish growth is likely to relieve pressure on policymakers at the Bank of England to raise interest rates in the face of soaring inflation. John Cridland, the director general of the CBI, said the “modest rebound” in economic growth had recouped the loss in output caused by the bad weather in the fourth quarter of last year. “Growth of 0.5% in the first quarter is in line with our expectations and, while encouraging, it does reaffirm our view that the recovery remains slow and sluggish,” he said. “The main reason the growth figures were not stronger is the contraction in construction, with the overhang into January from the bad weather. February’s construction figures show some recovery.” The business secretary, Vince Cable, said the figures showed welcome growth in manufacturing. Giving evidence to the Commons business committee on Wednesday, he said: “If you drill beneath the overall growth figures this morning, you will see that manufacturing growth is being sustained, which is exactly how it should be.” But David Kern, the chief economist at the British Chambers of Commerce, said the figures were “mixed” and “well below” the Office for Budget Responsibility prediction that the economy would grow by 0.8% in the quarter. Kern said: “On the basis of these figures, we reiterate our forecast that, in 2011 as a whole, GDP is likely to grow by 1.4% – much lower than the OBR’s expectation of a 1.7% increase. “There are some positive features in these figures, particularly the 1.1% growth in manufacturing and the 0.9% increase in services. “But construction fell sharply for a second quarter in a row and the economy’s overall performance is still mediocre. Total economic activity has only just returned to the levels seen in the third quarter of 2011.” Economic growth (GDP) Economics George Osborne Ed Balls Economic policy Recession Hélène Mulholland guardian.co.uk

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