Britain ends 2009 as last G20 nation still in recession

The British economy has weathered one of its most turbulent years and has ended 2009 with unemployment lower than expected but still in recession.

Chancellor of the Exchequer Alistair Darling came to the end of the year with a pre-budget report that forecast modest growth for 2009's fourth quarter, but also predicted a year-on-year decline in GDP of 4.75 percent.

As the United States, France and Japan all moved into growth in the third quarter, Britain was officially left as the final G20 nation still in recession.

Negative growth has lasted for six straight quarters and is the longest since records began in 1955.

Darling predicted a modest return to growth for the fourth quarter of 2009.

Several banks -- most notably the Royal Bank of Scotland (RBS) and Lloyds Group -- were bailed out in 2008, and 2009 saw further aid being extended to them.

According to National Audit Office figures, the British government has so far stumped up 117 billion pounds (189 billion U.S. dollars) to rescue its most vulnerable financial performers.

Those same performers gearing up to reward themselves with bonuses one year after government bailout caused widespread public anger.

Darling reacted by slapping a 50-percent bonus tax on bankers' bonuses above 25,000 pounds (40,400 dollars).

He also raised the public sector borrowing requirement for 2009to an historic high of 178 billion pounds (287 billion dollars), and 176 billion pounds (284 billion dollars) for 2010, earning criticism for his failure to be explicit how this spending will be reined in the medium term.

In the early part of 2009, the Bank of England (BOE) reduced interest rates to a historic low of 0.5 percent, and has left them there for nine months to boost lending.

In addition, it has for the first time used quantitative easing to boost the lending.

One year earlier, the British government had slashed VAT, or value added tax, to 15.0 percent in a bid to boost the recession-struck economy and lift consumer spending.

However, Darling confirmed last month that VAT would revert back to its pre-recession level of 17.5 percent on Jan. 1.

Inflation peaked in May at 2.2 percent, but was on its way backup again with the last available figures in November showing it reached 1.9 percent, pushed by rising fuel prices.

The BOE forecast that inflation would go through the 2 percent barrier in 2010.

In its final quarterly report of the year, the BOE said the rate of wage increase had slowed and that household incomes were under pressure.

The BOE said in its bulletin for the fourth quarter: "An important component of this slower wage growth has been the recent movements in pay settlements. Average pay settlements have fallen sharply over the past year and many companies have imposed pay freezes."

"The decline has been broad-based across sectors. The decline in settlements likely reflect both the weakening demand for labor and the sharp falls in official measures of inflation."

The bank reported that 35 percent of workers saw their pay frozen, but that only 1 percent of workers saw their pay cut.

The result is that nearly a third of workers have seen their household income drop by at least 1,200 pounds (1,930 dollars) a year.

The unemployment rate remained the same in the three months to October (the last period figures available) as in the previous three-month period at 7.9 percent, said the Office of National Statistics (ONS).

This put the total at 2.49 million unemployed, a rise of 608,000 from a year earlier and the highest figure since early 1995, but less than experts had feared.

The ONS said that though the number of jobless was still rising, this was the smallest quarterly increase in the number of unemployed since March-May 2008.

Latest figures from the ONS showed that industrial production in Britain was unchanged in October from the previous month. Compared with the same month last year, production fell 8.4 percent.

Economists had forecast a 0.4-percent monthly rise and a 7.7-percent year-on-year decline.

Manufacturing output was also flat in October, recording a 7.8-percent fall from the level seen in October 2008. Economists had forecast a 0.4-percent monthly rise and a 7.2-percent annual fall.

Commenting on the manufacturing output figures, David Kern, chief economist at the British Chambers of Commerce, said: "The failure of manufacturing to show any growth in October is disappointing and increases concerns that a return to growth in Q4(the fourth quarter) is not yet guaranteed. All the longer-term comparisons -- both three months and 12 months -- show that manufacturing output is still declining."

"A recovery in manufacturing is critical in order to secure the much needed rebalancing of the UK's economy," he said.

The housing market has seemingly bounced back from recession more quickly than the other sectors.

Nationwide Building Society said on Thursday that the average price of a home was 162,103 pounds (262,000 dollars), up from 153,048 pounds (247,400 dollars) in December 2008.

Low interest rates, the re-entry of cash buyers to the market, and a continued lack of homes for sale had all put upward pressure on prices, despite only a modest increase in demand.

Martin Gahbauer, Nationwide's chief economist, said: "The average price of a typical UK property has ended the year 5.9 percent higher than at the end of 2008."

"Although house prices are still 12.2 percent lower than their October 2007 cyclical peak, they have now rebounded by an impressive 8.9 percent since their February 2009 trough."

With a general election due no later than the end of May 2010, the new government will face the immense task of continuing the slow and bumpy turnaround the British economy has experienced in 2009.

[Source: By Peter Barker, Xinhua, London, 01Jan10]

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