U.K. Exports, Construction Slump Raise Recession Risk: Economy
Exports plunged 8.6 percent from March, the most in almost six years, pushing the trade deficit to 10.1 billion pounds ($15.7 billion) from 8.73 billion pounds, the Office for National Statistics said today. Construction output dropped 13.2 percent, it said in a separate report.
The data highlight the vulnerability of the U.K. to the euro-area crisis, two days before elections in Greece that may spark a breakup of the 17-nation common currency area. King said yesterday the case for more stimulus in the U.K. is “growing” and he and Chancellor of the Exchequer George Osborne unveiled measures to help bank liquidity and boost lending.
“The recession is set to continue,” said Vicky Redwood, an economist at Capital Economics in London and a former central bank official. “The export number shows the other cost of the euro-zone crisis on the economy aside from bank funding. We think the bank may do more quantitative easing next month.”
King said the euro-area crisis is casting “a black cloud of uncertainty,” highlighting the alarm of global central bankers after Spain became the fourth member of the region to seek a bailout. In addition to looser policy, he said the central bank will activate a sterling liquidity facility to aid banks and start within weeks a credit-easing operation that may boost lending by 80 billion pounds.
“Since our Inflation Report only four weeks ago, conditions have deteriorated with weakening business surveys, a downward revision to measured output, and further slowing in economies overseas,” the governor said.
Britain’s deficit for goods and services widened to 4.42 billion pounds in April, the statistics office said. That’s the second highest on record and the biggest since August 2005, in the aftermath of Hurricane Katrina. The goods deficit with the European Union widened to a record 4.9 billion pounds.
The construction report showed that in the quarter through April, output fell 6.7 percent from the same period a year earlier. Construction plunged 4.9 percent in the first quarter, when the economy shrank 0.3 percent.
“It’s looking pretty borderline for the U.K. economy,” said Simon Hayes, an economist at Barclays Plc in London. referring to a potential contraction in the current quarter. “The Spain situation has left a lot of people exasperated. If this keeps going, since we’ve already got tighter credit conditions, we have a very weak near-term outlook.”
U.K. manufacturing shrank the most in three years in May as domestic and foreign demand weakened, a report this month showed. Separately today, the EU’s statistics office reported that euro-area exports declined for a second month in April, adding to signs of continued weakness in the region.
European stocks rose today, with the Stoxx Europe 600 Index climbing 0.8 percent as of 11:46 a.m. in London. The MSCI Asia Pacific Index advanced 1 percent. The pound fell 0.1 percent against the dollar today to traded at $1.5547.
Reuters reported yesterday that central banks are prepared to coordinate actions if needed to boost liquidity in financial markets, citing officials linked to the Group of 20 nations.
Spokesmen and spokeswomen at the European Central Bank, Bank of England, Bundesbank, Swiss National Bank and Bank of France declined to comment when contacted by Bloomberg News on the prospect of emergency coordinated action.
Bank of Japan (8301) Governor Masaaki Shirakawa, speaking after a policy meeting today, said central banks are always in close contact and share the view that financial stability is important. G-20 leaders will hold a summit in Mexico starting on June 18.
At its meeting, the BOJ kept the size of its asset-purchase fund at 40 trillion yen and a credit lending program at 30 trillion yen, matching the forecasts of 13 economists surveyed by Bloomberg News. It said it will pay “particular” attention to global markets.
In the U.S., industrial production probably cooled in May as businesses trimmed investment plans and fewer motor vehicles rolled off assembly lines as sales slowed, economists said. Output at factories, mines and utilities increased 0.1 percent after April’s 1.1 percent advance that was the biggest since December 2010, according to a survey. Another report may show manufacturing in the New York-region probably slowed.
“The world economy is a much less welcoming environment in which to rebalance the U.K. economy than two years ago,” King said. “Not only have the euro-area problems escalated to the point where exit for Greece and other periphery countries is the subject of widespread speculation, but signs of a slowing in China, India, and other previously buoyant emerging economies, such as Brazil, are appearing daily.”
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