Has Britain avoided a recession?

The latest GDP figures published in April showed that the UK economy continued to grow during the first quarter of this year. Against expectation, the economy grew fractionally on the previous quarter to register a year-on-year growth figure of 0.7%. Not exactly a booming economy. But not a recession either.

This has to mean good news for jobs. Last year saw the business world getting very gloomy indeed. Six months ago, CBI surveys revealed a level of business confidence that was lower than in the last recession. And as confidence started to ebb away last Summer, the job loss announcements tumbled across newspapers and the TV causing consumers to get distinctly jittery.

Employers' anxiety was well founded though. The Far Eastern economies had gone into melt-down, the Russian loan default threatened a banking crisis whilst Latin America appeared to be the next candidate for chaos. In Britain, the outgoing Conservative Government had carelessly loosened monetary policy in a vain attempt to woo voters. The Chancellor let the newly independent Bank of England return rates to a hawkishly higher level - not least because a set of unreliable earnings data suggested that inflationary pressures were building up - and high rates caused the pound to appreciate to levels that made manufacturers panic. Meanwhile strong growth in Britain and North America suggested the familiar cycle of boom was about to go into bust. All that was needed was another piece of bad news.

Three things prevented recession. Firstly, the Government convinced the markets that their tough public spending limits were fireproof. Secondly - and just in time - political pressure forced the Bank of England to reduce base rates by 2.25 percentage points. That may not sound like much but the cut from 7.5% represents a reduction of nearly one third. Lastly, the financial institutions did not panic in the face of global economic instability. Unlike previous recessions that have been triggered by external shocks, the markets maintained a fairly cool head, assessed the risks, adjusted prices, revised their plans and carried on trading. Having discounted the real economic costs of problems worldwide, financiers did not retreat into safe countries, hard currencies or into gold. The disaster was averted.

So things are not getting worse then. But will they get any better? City forecasters now predict growth inching upwards - in some cases mirroring the Treasury's fairly optimistic assumptions of 1% growth this year followed by 2.5% next year.

The external environment is very important. Britain has suffered uniquely low economic growth which is not matched by the rest of Europe which has generally enjoyed better times. Although the Euro's launch was followed by a slow devaluation of the currency it is not so significant as to push up Europe's astonishingly low interest rates. However, the cost of war and reconstruction in the Balkans could throw these economies into turmoil - just as the consequences of German re-unification plunged most of the Continent into recession in 1991.

Only North America seems to be immune. The USA is going through its longest ever peacetime expansion - clocking strong growth continuously since early 1991. The latest quarterly figures show a real boom underway with the economy growing at a 4.5% annual rate - driven along by very strong consumer spending.

Could Britain emerge this year and grow at such a rate? Yes it could. Indicators already suggest that confidence is rising sharply. In April, a monthly CBI survey showed 41% of retailers reporting higher sales against only 26% reporting declines; a survey of 6,000 consumers for Business Strategies revealed a 22 point difference between optimists and pessimists. Services and consumer spending are not the only recovery areas: the latest Chartered Institute of Purchasing data recorded its first positive reading since early 1998 which indicates that factories are producing more. New manufacturing orders for the domestic market have risen. Confirming these trends, a Gallup poll of UK investment fund managers has revealed that 83% expected the economy to strengthen.

There are some worries however. Sterling has risen back to 2.95 Deutsch Marks - the dangerously high level that Britain disastrously locked into when joining the ERM in 1990. As a result, manufacturers are still losing export orders, continuing to shed jobs and the trade deficit has started to widen.

More importantly, Britain is not experiencing recovery evenly. The latest employment figures show that over the last year - with UK-wide jobs growth of 340,000 - employment shrunk in Scotland, the North East and Merseyside. Meanwhile, London and the Southeast - where a fifth of the UK workforce lives - accounted for 61% of the whole country's jobs growth.

Elsewhere they aren't talking too much about a boom yet.