U.K. Seen Shrinking This Quarter Amid Triple-Dip Risk: Economy
Britain’s economy may shrink this quarter and the risk has increased that the country will succumb to its first triple-dip recession since records began almost six decades ago, according to a survey of economists.
Gross domestic product will fall 0.1 percent in the three months through December, according to the median forecast in a Bloomberg News survey. That’s down from 0.1 percent growth forecast last month. While economists see 0.2 percent expansion in the first quarter of 2013, the odds of the economy slipping back into a recession within the next year increased to 33 percent from 28 percent.
The survey adds to the gloomy assessment of the economy provided by Bank of England Governor Mervyn King this week when he said the outlook remains “challenging” and the recovery will be “long and winding.” While the central bank halted bond purchases last week, King said policy makers haven’t ruled out restarting their quantitative-easing program again if needed.
“With business surveys and an external environment still weak, there’s a pretty high chance that GDP will fall back in the fourth quarter,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. “It’s not our working assumption there will be a contraction in the first quarter, but if there was a proper triple dip, not caused by temporary factors, I think there’d be a high chance of more QE.”
While Britain’s economy exited a double-dip recession in the third quarter -- its first since the 1970s -- the rebound was partly attributable to the Olympics. That followed a second- quarter slump exacerbated by an extra public holiday in June. The Office for National Statistics has quarterly GDP data going back to 1955.
Data yesterday showed retail sales fell more than forecast in October, while manufacturing and services surveys weakened. King said a “zig zag pattern” of output is likely to continue.
The U.K. economy will probably shrink 0.1 percent this year, which would be its first full-year contraction since 2009, before expanding 1.1 percent in 2013, according to the survey. Economists were polled from Nov. 9 to Nov. 14. There were 10 respondents for the quarterly forecasts and 36 for the annual projections.
King said this week that the biggest risk to the U.K. remains the euro-area debt crisis. He made his comments as the Bank of England published its quarterly Inflation Report, which also highlighted pressure on the economy from Chancellor of the Exchequer George Osborne’s budget cuts.
The economy may also be held back as inflation accelerates, outpacing wage growth and squeezing consumers. Consumer-price growth quickened to 2.7 percent in October from 2.2 percent in September.
The Bank of England expects inflation to ease in the second half of 2013 and said on Nov. 14 that a pickup in real incomes should filter through to consumer spending, though it cautioned that some of the extra money may be saved rather than spent.
Economists forecast inflation of 2.4 percent this quarter and 2.3 percent in the first two quarters of 2013, above the Bank of England’s 2 percent target. It will average 2.2 percent in 2013 and 1.9 percent the following year.
A separate survey published today showed that Germany’s economy, the euro-area’s largest, will also shrink this quarter, according to the median of 21 estimates. GDP will fall 0.1 percent before rising 0.2 percent and 0.3 percent in subsequent quarters.
The economy of the 17-nation euro region will shrink 0.3 percent this quarter and stagnate in the first three months of 2013, according to a separate poll. Data yesterday showed GDP slipped 0.1 percent in the third quarter, pushing the economy into recession for the second time in four years. The economy, seen shrinking 0.5 percent this year, will barely grow in 2013, economists said.
The euro-area’s trade surplus widened in September as exports fell a seasonally adjusted 1.1 percent from August and imports dropped 2.7 percent, the European Union’s statistics office said today.
In Tokyo, the government downgraded its view of the economy for a fourth month, and cut its assessment of the job market for the first time in 17 months. Private consumption is “showing weakness” and capital expenditure is “growing weaker,” the Cabinet Office said.
Japan’s economy shrank an annualized 3.5 percent last quarter and will contract 0.4 percent in this three-month period, according to the median of 24 estimates in a Bloomberg survey, the third technical recession since 2008.
A U.S. report later today may show industrial production cooled in October as superstorm Sandy knocked out power for utility customers in the Northeast. Output at manufacturers, mines and utilities rose 0.2 percent after a 0.4 percent increase in September, according to the median projection of 84 economists surveyed by Bloomberg before the Federal Reserve’s report at 9:15 a.m. in Washington.