Economic recovery: the UK versus the US
After growth figures from both countries showed contrasting economic fortunes, we compare some of the key indicators in the UK and US recoveries.
Scott Heppell - PA Wire and Carolyn Kaster - AP
US President Barack Obama was given a boost on Friday as new figures showed that the country's economy grew strongly in the final quarter of 2010.
The results showed an annualised GDP rate of 3.2%, up from 2.6% in the previous quarter, with growth boosted by a dramatic increase in consumer spending. Overall, the US economy grew by 2.9% in 2010.
The news came just days after Britain's disappointing GDP figures showed a contraction of 0.5%, reigniting fears that a double-dip recession is on the horizon.
Conversely, it was lower-than-expected consumer spending - caused at least in part by December's heavy snowfall - that largely contributed to the quarterly downturn.
Given what we've seen in the past week, is the US winning the race to recovery? And if so, why are we falling so far behind?
After last week's figures revealed a return to negative growth, Chancellor George Osborne was quick to point out that certain sectors were hit particularly badly by snow during the period. Nonetheless, the figures from the Office for National Statistics (ONS) indicated that production would still have been flat during the period, once the impact of the weather was factored out.
As well as being shocked by the figures, many economists raised concerns that with a VAT rise and public spending cuts still to come, growth could continue to falter in the coming months. With this in mind, there remains every chance that the next set of data could also indicate a second successive quarterly decline, turning fears of a double-dip recession into a reality.
Things look positively rosier for the US, on the other hand. Friday's figures showed that the economy is already growing strongly following one of the toughest recessions in American history - in fact, the 3.2% GDP rise was seen as relatively disappointing, given predictions of a 3.5% increase prior to the release of the data.
End of the UK recession: One year on
That's not to say that the pain is over, however. Jobs are a major concern for governments in both countries. Before the release of Friday's figures, the Federal Reserve had warned that the economic recovery was happening at "a rate that has been insufficient to bring about a significant improvement in labor market conditions."
Employment is undoubtedly President Obama's key concern going into 2011, with his country's rate of unemployment estimated at 9.4% in December.
That was a slight fall from the previous month's 9.8%, but any optimism that created will have been tempered by further data published last week, which showed an increase in the number of Americans claiming jobless benefits. As a result, the White House will no doubt be looking on anxiously as fresh employment data is released on Friday.
And while the second half of 2010 also showed an encouraging slowdown in the rate of job losses in the UK, the picture could well be different in the coming year - particularly as government spending cuts begin to take effect. Indeed, UK unemployment data has the current rate of joblessness at 7.9% - better than the US, yes, but there could yet be worse to come.
An estimated 490,000 public sector jobs are due to go by the end of this parliament, according to the Treasury's own estimations. As a result, the government is pinning its hopes on the private sector to have a strong year and create jobs to fill the void. This hope will make the recent negative growth figures all the more worrying.
The Federal Reserve looks set to keep interest rates frozen for some time as the economic recovery remains uncertain. This week, it voted to retain rates at near zero and maintain its $600 billion quantitative easing (QE) programme.
Much to the despair of British savers, the Bank's Monetary Policy Committee (MPC) has taken a similar tack on interest rates, with rates at an all-time low of 0.5% since March 2009, and calls for a second phase of QE growing after this week's disappointing GDP figures.
Watch Barack Obama's state of the union address on Bing
The US has a pretty major deficit to deal with, too. The Congressional Budget Office predicts that the federal budget deficit will reach nearly $1.5 trillion (£0.94 trillion) in 2011. That's a record in dollar terms, and amounts to 9.8% of the country's GDP.
Most recent figures from the ONS indicate that the UK deficit stood at 11.4% of GDP in the 2009/10 financial year, though the actual amount borrowed by the government remains far less than their American counterparts, at just under £160 billion.
The approach to what is clearly a similar problem for both nations has been markedly different on either side of the Atlantic, however. In his state of the union address this week, Obama appeared to mark the deficit simply as one of a long list of problems that his administration was seeking to deal with, much to the chagrin of many Republicans sitting in opposition.
No-one, on the other hand, could accuse the UK's coalition government of failing to prioritise the deficit. Chancellor George Osborne's hard-hitting measures to tackle government debt have courted controversy at times, as the government aims to cut spending by £81 billion a year by 2014/15.
Unsurprisingly, the pound took some knocks against the dollar last week as bad GDP data and a dramatic fall in the consumer confidence index met with the strong US growth figures. Sterling slipped 0.5% against the dollar on Friday to $1.5840, and that trend might be expected to continue in the coming weeks as middle-eastern political turmoil leads investors to seek the safe-haven of US currency.
Broadly, though, sterling has had a strong month against the dollar. Indeed, the two currencies currently remain at a broadly similar level against one another as a year ago, after the pound fought back from a tough first half of 2010.
However, those similarities in outlooks may end in 2011. As Saxo Bank argued in their recent outlook for the year ahead, the UK's more austere economic policy in the next year could provide a boost for incoming investment in the UK.
The online trading and investment specialist noted that while the Treasury's measures to reduce the deficit may slow growth in the short term, they "show a kind of dynamism and political willpower not at all evident in the US." This, they argue will improve confidence among investors over the country's longer-term future, boosting the pound's performance in 2011.
In truth, though, much will rely on events in the coming year. One only has to look at the response to last week's UK growth figures to see how unpredictable this recovery could yet prove to be.
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