U.K. Seen Avoiding Recession With 0.1% Quarterly Growth

The U.K. narrowly avoided sliding back into recession in the first quarter, with the economy failing to recover output lost in the previous three months, economists said.

Gross domestic product rose 0.1 percent, according to the median estimate in a Bloomberg News survey of 40 economists completed yesterday. It shrank 0.3 percent in the fourth quarter. The Office for National Statistics will publish the data at 9:30 a.m. in London on April 25.

Britain’s recovery is struggling to gain momentum as government spending cuts, slow incomes growth and rising energy prices squeeze household budgets, while the debt crisis in Europe drags on. Bank of England policy makers may leave their quantitative-easing program unchanged next month amid signs inflation may retreat less quickly than forecast two months ago.

“We’re at the very early stages of recovery, though underlying growth is modest,” said David Page, an economist at Lloyds TSB Bank in London. “QE is off the agenda for the short term, especially as the bank has awoken to the fact that inflation is a bit firmer than their forecast.”

GDP probably expanded 0.3 percent from a year earlier, according to a Bloomberg survey of survey of 31 economists.

Construction output returned to growth in February, though it failed to offset a 12.9 percent decline in January, and manufacturing output declined in both months, putting the onus on the dominant services sector to keep Britain out of recession. The construction data were not adjusted for seasonal swings, making it hard to predict its impact on GDP in the first quarter.

Underlying Strength

Bank of England Deputy Governor Paul Tucker and policy maker Adam Posen said this week that weak GDP in the first half may mask underlying strength in the economy. Minutes of the Monetary Policy Committee’s April policy meeting showed officials considered a recession was possible in the first half.

Tucker said April 18 temporary factors such as a sharp fall in construction output at the start of the year and an extra public holiday in June to mark Queen Elizabeth II’s 60 years on the throne may result in “weak headline” growth numbers for the first two quarters. Posen said the next day the economy “is stronger than what that data is going to show.”

The construction data introduce a “wide range of uncertainty” on the GDP figure, as they suggest a “savage decline in the first quarter on a par with the aftermath of the collapse of Lehman Brothers,” Page said. “That seems to us implausible. Other evidence suggests a more benign outlook.”

Posen ended his push to expand the bank’s 325 billion-pound bond-purchase plan this month, leaving David Miles as the only one on the nine-member panel arguing for more.

The bank announces its next policy decision May 10, when it will have new quarterly economic forecasts. Its February projections showed inflation dropping to the 2 percent target by the end of the year. Data this week showed inflation, which is in its third year above target, accelerated in March for the first time in six months to 3.5 percent.

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

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

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