U.K. GDP Forecasts Cut by European Commission After ‘Bleak’ 2012

Britain’s near-term outlook remains “very weak” and subdued spending and trade will hold back the economic recovery next year, the European Commission said as it cut its U.K. forecasts.

Gross domestic product will rise 0.9 percent in 2013 after falling 0.3 percent this year, the European Union’s executive in Brussels said in a twice-yearly report published today. In May, it projected growth of 0.5 percent in 2012 and 1.7 percent in 2013.

“The outlook for the remainder of 2012 remains bleak,” the commission said. “It is increasingly unlikely that net trade will give a positive contribution to growth this year and it will remain subdued next year.”

The commission cited risks to the U.K. from the euro-area debt crisis and weaker-than-expected consumption and investment. While the economy emerged from recession in the third quarter with the strongest growth in five years, recent surveys have pointed to weakness at the start of the current quarter.

Low credit availability “continues to weigh down on growth prospects, even as the demand for credit remains weak in some sectors,” the commission said. It expects the Bank of England’s Funding for Lending Scheme to ease credit conditions over the coming months and said it may have contributed to a recent increase in mortgage lending.

Echoing other commentators such as Britain’s National Institute of Economic and Social Research, the commission said Chancellor of the Exchequer George Osborne will miss his target to have government debt falling as share of GDP by 2015. It also sees the government overshooting its borrowing target in the current fiscal year.

To contact the reporter on this story: Fergal O’Brien in London at fobrien@bloomberg.net

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

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