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U.K. Economic Growth Probably Slowed to 0.5% in Fourth Quarter

U.K. economic growth probably slowed in the fourth quarter as the coldest weather in a century in December hurt services and retailing, keeping pressure on policy makers to consider adding stimulus to aid the recovery.

Gross domestic product rose 0.5 percent in the three months, compared with a 0.7 percent increase in the third quarter, according to the median forecast of 33 economists in a Bloomberg News survey. The Office for National Statistics will publish the data at 9:30 a.m. on Jan. 25 in London.

The data would signal a cooling U.K. recovery at the same time as inflation is accelerating. That dilemma has split the Bank of England on whether to expand its bond-purchase plan or raise the key interest rate. Policy maker Adam Posen said today he is sticking to his view that underlying inflation remains “low,” indicating he will continue to favor more stimulus.

“I think the MPC are very well aware of the risks,” said Andrew Goodwin, senior economic adviser for Ernst & Young LLP’s Item Club in London. “It’s going to be several months before we get a really accurate gauge of how strong the underlying recovery is. I don’t think they would even contemplate moving rates while there’s that sort of uncertainty around.”

Goodwin estimates the economy expanded 0.4 percent in the three months through December, citing surveys of purchasing managers as evidence of slowing expansion. Services unexpectedly contracted last month for the first time in more than 1 1/2 years, while construction shrank for the first time in 10 months, reports this month showed. Only manufacturing industries expanded in December as the weaker pound aided exports.

Inflation quickened to 3.7 percent in December, moving further above the government’s 3 percent limit. Posen attributed the increase to “one-time shocks” such as the pound’s weakness and a sales-tax increase. Inflation will ease to “well below” the bank’s 2 percent target, he said in a Bloomberg interview.

The central bank left its benchmark interest rate on hold at a record low of 0.5 percent this month and kept its asset- purchase program at 200 billion pounds ($320 billion). It will publish the minutes of that meeting on Jan. 26.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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