Page last updated at 21:21 GMT, Friday, 26 February 2010

UK economic growth revised up to 0.3%

Graph showing GDP growth

The UK economy grew by 0.3% in the final three months of last year, faster than previously estimated.

The revision was due to stronger growth in services and production.

The initial estimate released last month said the UK economy had grown by 0.1% in the last quarter of 2009, meaning it had emerged from recession.

However, the size of the overall contraction in gross domestic product (GDP) during the recession increased, from a 6% fall to a 6.25% drop.

Largely because the economy is now thought to have been smaller going into the final three months of last year, the estimated growth during that period has been revised up.

The level of GDP at the turn of the year has actually been revised down slightly.

Prior to the October to December period, the economy had contracted for six consecutive quarters - the longest period since quarterly figures were first recorded in 1955.

'Weak January'

Output in the service sector rose by 0.5% between October and December, up from a fall of 0.3% in the previous quarter, the Office for National Statistics said.

Stephanie Flanders
Stephanie Flanders, BBC economics editor
This revision will be seen as a vindication of the City analysts who thought the economy in the last months of 2009 was stronger than the official statistics implied.

But we can't rule out a weak growth figure for the UK in the first quarter of 2010, especially if the temporary VAT cut encouraged people to make purchases in late 2009 that they would otherwise have been making now.

The big picture is that we are still looking at a weak and fragile recovery, after a recession that now looks to have been slightly deeper than we thought.

Also, the expenditure figures show all the strength coming from household spending. Both investment and net trade took away from growth - not an encouraging sign for the future.

Output from production industries rose by 0.4%, compared with a 1% fall between July and September.

Household expenditure was up by 0.4%.

The better-than-expected revision confirms the UK's economic recovery. But analysts said there was still a chance that the economy could contract again in the current quarter.

"I don't think we are out of the woods," said Adam Chester at Lloyds TSB Corporate Markets.

"The first quarter [of 2010] is now going to be the focus and given the weak January we have had and the bad weather, there is still a distinct possibility that we could dip back into the red in the first three months."

Ian McCafferty, chief economic adviser to the business group CBI, said: "The numbers for the first quarter of this year could still turn out to be quite weak."

There are concerns that the rise in VAT, which returned to 17.5% in January, and the decision earlier this month by the Bank of England to stop pumping money into the economy, could act as a drag on growth.

The government's car scrappage scheme, which has provided a boost to the manufacturing sector, is also due to end in March.

Increased borrowing

The UK had been the last major economy to start growing again.

Europe's two biggest economies - Germany and France - came out of recession last summer, and Japan and the US also emerged from recession last year.

The UK recession began in the April-to-June quarter of 2008, and was the longest UK downturn on record.

During 18 months of recession, public borrowing increased to an estimated £178bn.

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