Britain Seen Avoiding Recession as Osborne Sticks to Austerity
The U.K. economy probably avoided an unprecedented triple-dip recession, providing relief to a Conservative-led government under attack for putting austerity before growth.
Gross domestic product grew 0.1 percent in the first quarter after contracting 0.3 percent in the fourth quarter of 2012, according to the median of 37 estimates in a Bloomberg News survey. From a year earlier, it probably increased 0.4 percent. The Office for National Statistics will release the data at 9:30 a.m. in London today.
Chancellor of the Exchequer George Osborne has drawn criticism from both the opposition Labour Party and the International Monetary Fund for refusing to ease his deficit- cutting program. The Treasury and the Bank of England said yesterday they will extend their credit-boosting plan by one year in a bid to spur an economy that has recovered little more than half the output lost during the global financial crisis.
“Probably overall, the economy is growing even if the figures say it isn’t, but it’s not doing so at a particularly convincing pace,” said David Tinsley, an economist at BNP Paribas SA in London and a former Bank of England official. “I don’t see Osborne doing anything in terms of fiscal stimulus this year. They might do something in 2014 for political purposes, but that would be more electioneering.”
Recovery prospects remain poor, with the debt crisis in the euro area sapping demand in the biggest market for British goods while inflation running at 2.8 percent and accelerating eats into household incomes. The 17-nation euro region shrank 0.1 percent in the first quarter, according to a Bloomberg survey published on April 11. The figures will be released on May 15.
A pickup in growth in the U.S. may help. The world’s biggest economy grew in the first quarter at a 3 percent annual rate after expanding at a 0.4 percent pace in the final three months of 2012, according to the median forecast of 84 economists. The data will be released by the Commerce Department tomorrow.
BOE policy makers have split on the need to provide more stimulus to the economy through quantitative easing. Governor Mervyn King has wanted to buy more bonds for three consecutive months, but was outvoted by a majority on the nine-member Monetary Policy Committee, minutes of their meetings show.
Fitch Ratings last week became the second ratings company to strip Britain of its top credit grade and the IMF urged Osborne to consider putting a brake on the deepest budget cuts since World War II as it lowered its 2013 growth forecast to 0.7 percent. Officials from the Washington-based lender will visit London next month to present their audit of the U.K. economy.
MPC member Martin Weale, who voted to maintain bond purchases at 375 billion pounds ($572 billion) this month, said in an interview last week said there was a risk the economy contracted for a second straight quarter, marking the third recession since 2008. Six of the 37 economists surveyed predicted a contraction.
The so-called Funding for Lending Scheme began in August to give banks access to cheap loans providing they pass on the savings to businesses and consumers. The expansion of the program announced yesterday will allow banks to borrow 10 pounds next year for every 1 pound they lend to small companies in 2013. If they wait to extend the loan until next year, the amount they can borrow under the plan is halved to 5 pounds for every pound loaned. Banks can borrow 1 pound for every pound loaned with the rest of the program.
The plan is also being expanded to allow access to some non-bank lenders such as financial leasing corporations, which are a source of credit for smaller companies.
Today’s GDP report will be a preliminary estimate and based on about 45 percent of the data that will ultimately be available. It will have estimates for output in categories including production, services and construction. The second estimate on May 23 will include consumer spending and exports.
Almost six years after the financial crisis began, British economic output is almost 3 percent below its pre-recession peak, the worst performance bar Italy among Group of Seven countries. Cameron’s Conservative Party trails behind the Labour opposition by about nine percentage points in recent polls, with a general election just over two years away.
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