Tags: united kingdom | economy recession | britain

UK Economy Seen Avoiding Triple-Dip Recession in First Quarter

Friday, 19 Apr 2013 01:45 PM

Britain’s economy probably narrowly avoided falling into an unprecedented triple-dip recession in the first quarter, economists said.

Gross domestic product rose 0.1 percent in the period, failing to recover the 0.3 percent decline in the fourth quarter of 2012, according to the median of 37 economists in a Bloomberg News survey. From a year earlier, GDP increased 0.4 percent, the survey showed.

The forecast matches an estimate from the National Institute of Economic and Social Research and may help to support confidence. Still, the recovery may struggle to gather momentum as weak demand in the euro area, Britain’s biggest export market, a fiscal squeeze at home and rising unemployment weigh on the economy.

“Whether the economy shrinks by a fraction or grows by a fraction is of little importance in the big picture,” said Vicky Redwood, chief U.K. economist at Capital Economics Ltd. in London and a former Bank of England official. “The main point is that the recovery will still look depressingly dismal.”

BOE policy makers have split on the need for more quantitative easing, with a push for more stimulus led by Governor Mervyn King defeated by a majority citing the threat of rising inflation expectations.

The central bank kept its target for QE at 375 billion pounds ($574 billion) on April 4. The majority of the Monetary Policy Committee said that medium-term inflation expectations had “drifted upwards” and further easing may exacerbate this.

MPC member Martin Weale, who voted with the majority, said in an interview there’s a risk of a “minor” first- quarter contraction and that easing inflationary pressures give “more room for maneuver” to expand stimulus.

IMF Outlook

The International Monetary Fund cut its U.K. 2013 economic outlook this week -- forecasting 0.7 percent growth -- and said the BOE should consider increasing stimulus. It also said Chancellor of the Exchequer George Osborne may need to ease the pace of budget cuts.

Niesr estimated on April 9 that the economy grew 0.1 percent in the three months through March. It sees growth of 0.7 percent this year. Estimates in the Bloomberg survey for the first quarter ranged from growth of 0.3 percent to a contraction of 0.3 percent.

The April 25 report will be a preliminary estimate and will be based on about 45 percent of the data that will ultimately be available. It will have estimates for output in categories including production, services and construction. The second estimate, due on May 23, will have data on consumer spending and exports.

Redwood forecasts stagnation in the first quarter. While the data may not prompt the MPC to change their stance “unless it is a really bad figure,” confirmation of a recession may undermine sentiment and the government’s reputation.

“‘Triple-dip’ headlines will not do much good for consumer and business confidence,” she said. “And there are significant political implications of whether the U.K. is back in recession or not, especially after the IMF’s criticism of the U.K.’s austerity program.”

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