British Economy Extends Rebound From Recession as U.K. Election Approaches

The U.K. economy probably extended its recovery from the worst recession on record in the first quarter, potentially aiding Prime Minister Gordon Brown in his campaign for the election due within two weeks.

Gross domestic product rose 0.4 percent in the first three months of the year, the same pace as in the fourth quarter when the slump ended, according to the median of 32 forecasts in a Bloomberg News survey. The Office for National Statistics will release the data at 9:30 a.m. today in London.

Confirmation that Britain’s recovery has persisted for two quarters may intensify the election fight between Brown and Conservative Leader David Cameron on how long to keep up economic stimulus. The winner of the May 6 vote will need to tackle a budget deficit which swelled to the worst since World War II last year.

“It would be good news for Brown,” said Brian Hilliard, a London-based economist at Societe Generale SA and a former Bank of England official. “It’s spring, the sun is shining, people are looking at short-term data and they’re looking quite good. The feel-good factor is returning and that’s usually better for the incumbent.”

Brown, Cameron and Liberal Democrat Leader Nick Clegg clashed in a televised debate on Sky News last night, the second of three such sparring matches planned before the election. The ruling Labour Party had 29 percent support, compared with 34 percent for the Conservatives and 28 percent for the Liberal Democrats in a YouGov Plc opinion poll published yesterday.

Data Breakdown

The data will be the first for the quarter from the Group of Seven. The report includes figures for the first two months provided by about 40 percent of companies assessed, or about 40,000 businesses, Joe Grice, the statistics office’s chief economist, said in a Feb. 16 interview. It includes full three- month data for a further 20,000 respondents.

Chancellor of the Exchequer Alistair Darling told reporters on April 13 that “whenever you get the GDP numbers, you’ve got to remember there are three cuts at them” rather than just looking at the initial estimate, which “covers the first half” of the quarter.

All but one of the economists in the Bloomberg News survey predict the data will show expansion, with the highest forecasts of 0.6 percent growth submitted by Colin Ellis at Daiwa Capital Markets Europe Ltd. in London and Nick Kounis at Fortis Bank Nederland NV in Amsterdam.

Economy ‘Strength’

“We saw some very good production numbers in February,” Ellis, a former official at the Bank of England, said in an interview. “We’re optimistic that some of that strength will have carried through to March.”

After a jolt to the economy in January from the coldest winter since 1979 and an increase in sales tax, manufacturing jumped in February by twice as much as economists forecast to the highest level since 2008. Retail sales rose for a second month in March, climbing 0.4 percent.

Britain faces the need to cut its budget deficit, which reached 152.8 billion pounds ($234 billion) in the past tax year. GDP data today showing growth may spark further election squabbling on whether to keep up stimulus, said Daiwa’s Ellis.

“Labour would probably say ‘this means you can’t trust anyone else, don’t let the Conservatives wreck the recovery,’” he said. “The Conservatives would probably say ‘the economy looks like it’s recovering quite well, we can afford to cut spending and raise taxes a bit quicker.’ It’s all in the eye of the beholder.”

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.