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Spain now the only western power trapped in recession

Tue 26th Jan 2010

Britain narrowly exited a record recession in the fourth quarter of 2009 with growth of just 0.1 percent, while massive state debt is likely to stunt recovery beyond a general election due by June.

The Office for National Statistics revealed that the economy grew during the three months to December, compared with the previous three months, after a record recession which lasted six quarters.

The news means that Spain is the only major Western power still trapped in a deep recession following the aftermath of the global financial crisis and the subsequent worldwide downturn.

The pound slumped against rival currencies following the ONS estimate, while London's benchmark FTSE 100 stock market index remained about 0.60 percent lower.

The ONS added that the British economy shrank by 4.8 percent over the course of 2009, compared with the previous year -- the biggest annual contraction on record.

Britain's government had forecast contraction of 4.75 percent in 2009, while the country's economy has shrunk by 6.0 percent since the recession began in the second quarter of 2008.

Confirmation of Britain's departure from recession may not be enough for Prime Minister Gordon Brown to keep his job following a looming general election.

Government borrowing is predicted to strike a record 178 billion pounds (203 billion euros, 288 billion dollars) in the 2009/10 financial year which ends in April.

However, Brown insisted Monday that now was not the right time to cut state aid, despite the mountain of debt that was largely caused by the multi-billion-pound bailouts of struggling British banks.

"If you withdraw the stimulus too quickly, then you risk a period when you put the recovery at risk. There is no doubt that that's the view of the rest of the world. It is certainly my view," Brown told a press conference.

The state of Britain's troubled economy has become the key battleground ahead of the general election that is likely to see Brown's Labour Party defeated by the main opposition Conservatives, according to polls.

Whichever party wins power, Britain faces public spending cuts and taxation hikes in the years ahead as it looks to reduce state borrowing, economists say.

The economy, which is also struggling with high unemployment caused by the financial crisis, contracted for six quarters in a row up until the final quarter of 2009 -- its longest recession since records began.

Finance minister Alistair Darling had predicted last month that the British economy would grow by 1.0-1.5 percent in 2010, after admitting that the nation's recession was deeper than originally thought.

To combat the downturn, the Bank of England cut interest rates to a record low level of 0.50 percent, where they have stood since March.

The central bank also introduced a radical policy of quantitative easing, or pumping new cash into the economy in a bid to kick-start lending.

The future for the British and wider global economy is far from rosy, with the International Monetary Fund and the United Nations recently warning of a possible renewed or "double-dip" recession this year.

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