Britain’s economy may slip closer to a double-dip recession today as Europe’s debt crisis and a slump in consumer spending undermine exports and domestic demand, according to economists.
Gross domestic product fell 0.1 percent in the fourth quarter, the first decline in a year, according to the median of 33 forecasts in a Bloomberg News survey. Ernst & Young’s ITEM Club forecasts another decline in the current quarter, which is the technical definition of a recession. It would be the first double dip in almost four decades.
Bank of England Governor Mervyn King said yesterday that policy makers can increase so-called quantitative easing again if needed once their current program of bond purchases ends early next month. The International Monetary Fund cut its U.K. growth outlook this week as European leaders fight a debt crisis that’s jeopardizing global expansion.
“In the big scheme, whether GDP expands or contracts by 0.1 percent, it’s still substantially below potential,” said Alan Clarke, an economist at Scotia Capital in London. “If we do enter recession, it is unlikely to be a deep or long one.”
The Office for National Statistics will publish the data at 9:30 a.m. in London. At the same time, the Bank of England will release minutes of its January meeting, which will show how policy makers voted this month, when they kept the bond-purchase target at 275 billion pounds ($429 billion).
The central bank’s bond purchases have helped to keep gilt yields close to record lows. The 10-year yield was at 2.17 percent as of 8:08 a.m. London, compared with 1.917 percent on Jan. 18, the lowest since Bloomberg began compiling the data in 1989.
Policy maker Adam Posen said on Jan. 23 that officials will increase their bond-purchase target next month if new forecasts for growth and inflation justify more stimulus. The central bank projected in November that inflation will fall below its 2 percent target at the end of this year.
A double dip would be the first since 1975, when the economy shrank in the second and third quarters of that year. It had previously contracted in the nine months through March 1974, as the oil crisis pushed up global energy prices.
Britain’s economy exited the most recent recession in the July-September period of 2009 after shrinking for five quarters.
European finance ministers meeting in Brussels over the past two days signaled they would push Greece’s private investors to accept bigger losses as part of a debt-swap deal. The brinkmanship over the deal clouded progress toward new fiscal rules and a beefed-up rescue fund, part of officials’ plan to resolve the debt crisis.
In addition to the euro turmoil, the U.K.’s recovery is being curbed by Prime Minister David Cameron’s fiscal squeeze, which is undermining consumer confidence. Unemployment rose to the highest in almost 16 years in the quarter through November.
Electronics retailer Kesa Electricals Plc said Jan. 19 that gross profit as a proportion of sales fell 0.9 percentage points in the fiscal third quarter due to weak market conditions.
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 Plc projecting a 0.7 percent slump. Three economists forecast stagnation, while five expect expansion.