Business

Key UK economic growth figures to be published

Shopkeepers try to clear snow
Image caption Bad winter weather was blamed for the bulk of the UK economy's contraction at the end of 2010

Key UK economic growth figures are published later that will show whether the economy has rebounded from the contraction at the end of last year or fallen into a double-dip recession.

The economy shrank by 0.5% in the final three months of last year due to heavy snow, taking most analysts by surprise.

The market expects GDP to have returned to growth between January and March.

Chancellor George Osborne, who has already seen the figures, said the economy was "on the right track".

But he also told cabinet colleagues on Tuesday: "Clearly it is still difficult".

Angela Eagle, shadow chief secretary to the Treasury replied: "George Osborne's confident declaration that the recovery is on the right track should be taken with a pinch of salt given his complacent claim last autumn that Britain was 'out of the danger zone'."

Some economists have forecast that the economy will have grown by 0.5%, following the contraction of the same amount at the end of last year.

"Our economy should not just be making up all the lost ground from the end of last year but growing strongly on top of that," Angela Eagle said.

The government appointed Office for Budget Responsibility suggested at the time of the March Budget that the economy will have grown by 0.8% in the first quarter of the year.

The GDP figure is a first estimate of the state of the economy at the state of the year and will be revised at least twice in the coming months as more information is gathered by statisticians.

Interest rates

The figure will help determine interest rates set by the Bank of England.

The Bank will be watching the latest figures with interest. It has so far resisted calls to raise interest rates, despite the inflation rate being double its 2% target, largely on the basis that doing so would jeopardise the fragile economic recovery.

However, three of the Bank's nine-member Monetary Policy Committee (MPC) have voted to raise rates for the past three months.

One of them, Andrew Sentance, warned on Tuesday that the Bank's credibility was at stake if it did not raise rates.

However, the fact that inflation, as measured by the Consumer Prices Index, fell to 4% this month from 4.4% in March, has relieved some of the pressure on the Bank.

Whereas many economists had expected the Bank to raise rates as early as May, the market now expects a move later in the summer.

Of 22 economists contacted by the BBC this week, 14 said they expected rates to go up in August.

But much will depend on the first quarter GDP figures.

Strong growth will increase pressure on the MPC to raise rates, on the basis that the recovery is less fragile and inflation must be brought down.

Weak growth, or even further contraction, would make any early rise unthinkable, as it would put further pressure on already stretched households and businesses and so undermine future growth.

Spending cuts

The government will also be watching the figures carefully. Weak growth would heighten criticism of its spending cuts, which are starting in earnest this month.

Some economists have criticised the speed and size of the cuts, which they say are putting the recovery at risk.

The government has argued the cuts are necessary to restore international investors' confidence in the UK, and will lower the country's borrowing costs, which means less money has to be wasted on debt repayments.

The coalition will see strong GDP growth, or at least stronger than expected, as vindication of its spending cuts.

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