U.K. to Avoid Recession as ‘Stabilization’ Signs Emerge: Economy

U.K. to Avoid Recession as ‘Stabilization’ Signs Emerge
The economy will expand 0.9 percent this year and 2 percent in 2013, the CBI, the U.K.’s largest business lobby group, said. Photographer: Simon Dawson/Bloomberg

The U.K. economy will escape a recession and the recovery will gain momentum this year, avoiding the need for more quantitative easing by the Bank of England, the Confederation of British Industry said.

“After a pretty stagnant winter where we flatlined, we think growth is starting again because we’ve got tentative signs of optimism,” CBI Director-General John Cridland said in an interview in London on Feb. 10. “There will be marginal growth” this quarter and “we’re not assuming in our growth forecasts that there will be a further package of QE.”

The Bank of England announced its latest round of bond purchases on Feb. 9 after the economy shrank in the fourth quarter amid turmoil from the euro-area debt crisis, bringing Britain to the edge of a recession. Cridland said sentiment had improved in recent weeks as signs of “stabilization” emerged in Europe and the global economy showed signs of resilience. Stocks advanced today and the euro strengthened after Greek lawmakers approved austerity plans to secure rescue funds.

“Economic conditions will continue to be tough, especially in the first half of the year, and the U.K. recovery will depend on the successful resolution of the euro-zone crisis,” Cridland said. “Although risks remain, we expect growth this year, improving modestly in 2013, primarily driven by positive net trade and business investment.”

Stocks Advance

The MSCI All-Country World Index added 0.5 percent as of 11:03 a.m. in London, while the Stoxx Europe 600 Index gained 0.8 percent. Futures on the Standard & Poor’s 500 Index climbed 0.6 percent, indicating the U.S. gauge will climb for the fourth time in five days. The euro strengthened 0.5 percent against the dollar to $1.3261.

Passage of the Greek austerity bill puts the spotlight on a meeting of euro-region finance ministers on Feb. 15 that must decide whether to approve the second aid package for the nation.

Demands from the European Commission, European Central Bank and International Monetary Fund “show the kind of pressure the troika is ready to continue to put on Greece,” Gilles Moec, co-chief European economist at Deutsche Bank AG in London, said in a Bloomberg Television interview. “The Europeans are not ready to create any kind of leeway to Greece; it has to give everything.”

Japan Shrinks

In Asia today, Japan’s Cabinet Office said the economy shrank an annualized 2.3 percent in the fourth quarter, more than economists estimated, as slumping exports undermined a recovery from last year’s record earthquake. The contraction compared with the median forecast for a 1.3 percent decline in a Bloomberg News survey of 26 economists.

The report underscores the pressure on Bank of Japan officials meeting today and tomorrow to consider more monetary easing as gains in the yen threaten to curb growth.

The Bank of England raised its bond-purchase target by 50 billion pounds ($79 billion) to 325 billion pounds on Feb 9. Governor Mervyn King will hold a press conference on Feb. 15 to publish the central bank’s new growth and inflation forecasts.

In other economic reports today, German wholesale-price inflation remained at 3 percent in January, while Swiss producer and import prices dropped more than economists forecast as companies lowered costs to address cooling growth. Mexico may report that industrial production grew 0.5 percent in December from the previous month after a 0.1 percent gain in November.

U.K. Forecasts

In the U.K., sentiment among CBI member companies has picked up in the past few months after the European Central Bank increased liquidity to the banking system in the euro area, Britain’s largest export market, and the U.S. and German economies showed signs of improvement, Cridland said. ECB President Mario Draghi signaled last week that the euro-region economic outlook had strengthened, saying recent data shows signs of “stabilization” amid Europe’s debt crisis.

While U.K. gross domestic product will rise less this year than previously forecast due to the 0.2 percent fourth-quarter slump, growth has restarted and “will pick up” during 2012, Cridland said. The economy will expand 0.9 percent this year and 2 percent in 2013, the CBI, the U.K.’s largest business lobby group, said.

In a separate report, accountancy firm BDO LLP said its business optimism index rose the most in 11 months. The index forecasts business confidence two quarters ahead, suggesting the economy could begin to recover in the second half of 2012, London-based BDO said in an e-mailed statement.

Data this week will show U.K. inflation probably slowed to a 14-month low in January and jobless claims increased for an 11th month, according to economist surveys.

Consumer prices rose an annual 3.6 percent after a 4.2 percent gain in December, the median forecast of 36 estimates showed. Jobless claims rose 3,000, according to the median of 24 estimates in another survey.

The inflation data is released tomorrow at 9:30 a.m. in London, while the unemployment report is published on Feb. 15

“Back in November, we had reached rock bottom,” Cridland said. “A couple of months on, I think the storm clouds are not as black as they were. There are tentative signs of optimism, particularly for those who can take advantage of growth outside Europe, elsewhere in the world.”

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