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Britain on the brink of leaving recession

January 25, 2010 | "The Sunday Times"

City economists expect figures published this week will confirm that Britain has pulled out of recession, with gross domestic product in the fourth quarter up by 0.3% on the previous three months.

This would represent the first rise in GDP since early 2008 and mark the formal end of an 18-month recession that has seen the economy contract by 6%.

The Treasury, which has yet to see the figures, will warn that any upturn will be fragile. Alistair Darling, the chancellor, will say the recovery remains dependent on official support for the economy remaining in place.

While some economists believe fourth-quarter growth will be stronger than the consensus 0.3% expectation, there are those who warn it will be a close-run thing. Fathom Financial Consulting warns the rise could be 0.1%.

However, Goldman Sachs said that the true upturn was stronger than the figures will suggest.

“Our forecast is 0.4%,” said Ben Broadbent, an economist with the firm, “but this is the ONS’s guess, not (we believe) the best estimate of the true rate of economic activity growth — something that, according to every business survey and evidence from the labour market, is proceeding at an above-trend rate.”

It comes as a report from Ernst & Young, the accountant, says profit warnings dropped to a six-year low last year, despite the severity of the recession.

After an above-average number of warnings in the first quarter of 2009, they tailed off during 2009, with 282 in the year, 37% fewer than in 2008 and the lowest annual total since 2003. There were 50 warnings from quoted UK companies in the final quarter of last year, a 60% drop on the same quarter of 2008.

“Given the depth of the slump, recovery has certainly come quicker than we might have anticipated,” said Andrew Wollaston at Ernst & Young. “This rapid economic recuperation, along with previously depressed earnings forecasts, is helping companies beat expectations and keep profit warnings low. But this is not the end of the story. Brace yourselves for a bumpy recovery.”

By David Smith

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