U.K. Economy Probably Contracted for First Time in a Year, Economists Say

The U.K. economy probably shrank in the fourth quarter for the first time in a year as Europe’s debt crisis curbed demand and undermined confidence, economists said.

Gross domestic product fell 0.1 percent from the third quarter, when it rose 0.6 percent, according to the median of 33 forecasts in a Bloomberg News survey. The Office for National Statistics will publish the data at 9:30 a.m. on Jan. 25 in London. Bank of England Governor Mervyn King will make his first speech of the year the previous evening in Brighton on the south coast of England.

The contraction may be the first step in a slide back into a recession, according to the Ernst & Young ITEM Club, which said this week that the U.K. is in a “state of paralysis.” The Bank of England is in the last of a four-month round of bond purchases aimed at boosting growth, and King has said expansion may be “broadly flat” until around the middle of 2012.

“We’ll get a recession with another contraction in the first quarter,” said Alan Clarke, an economist at Scotia Capital in London. “It’ll only be mildly negative though, but it reinforces the idea that the Bank of England will do more stimulus in February.”

Clarke, along with economists at Citigroup Inc. and Royal Bank of Scotland Group Plc, forecasts that the central bank will increase its bond-purchase target from 275 billion pounds ($426 billion) at its meeting next month. Minutes of the January decision, which will include how the nine-member Monetary Policy Committee voted, will be published at the same time as the GDP data.

Out of the 33 economists in the Bloomberg survey, 25 forecast a contraction in the fourth quarter, with the Centre for Economic and Business Research and Standard Chartered projecting a 0.7 percent slump. Three economists forecast stagnation, while five expect expansion. The data on Jan. 25 are a first estimate and subject to revision as they are based on limited information.

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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