U.K. Seen Falling Back Into Contraction as Olympic Boost Unwinds
Britain’s economy probably shrank in the fourth quarter as a boost from the 2012 Olympic Games during the summer unwound, leaving the country on the brink of an unprecedented triple-dip recession.
Gross domestic product dropped 0.1 percent from the previous three months, according to the median of 38 estimates in a Bloomberg News survey. The Office for National Statistics will publish the data at 9:30 a.m. in London.
Britain resumed growth in the third quarter, though the recovery remains under pressure from government spending cuts and inflation that’s outpacing wage increases. With the Bank of England forecasting a “slow” recovery, Governor Mervyn King said this week that policy makers will provide more stimulus to shore up growth if needed.
“The underlying performance of the economy is pretty slack at the moment,” said Vicky Redwood, chief U.K. economist at Capital Economics Ltd. in London. “A triple dip is certainly possible. We think the Bank of England will respond eventually, but it will be close run thing whether it will be next month.”
The economy’s performance in the fourth quarter was also affected by maintenance shutdowns of oil and gas platforms in the North Sea. Estimates in the Bloomberg GDP survey ranged from a contraction of 0.5 percent to growth of 0.1 percent. Only three economists in the poll forecast an increase in GDP.
The National Institute of Economic and Social Research has estimated that the economy shrank 0.3 percent in the fourth quarter. Excluding one-time factors, it says underlying growth is “flat.” Economists commonly define a recession as two consecutive quarters of declining economic output and a contraction in the fourth and first quarters would be the third slump since GDP reached its peak at the start of 2008.
Britain has not had a triple-dip recession in peace time since at least the start of Niesr’s data in 1920, according to Simon Kirby, an economist at the institute in London.
Britain is the first Group of Seven nation to report GDP data for the fourth quarter. U.S. growth probably slowed to a 1.5 percent annual rate from 3.1 percent in the third quarter, according to a survey of economists published on Jan. 10. The Commerce Department will publish the data on Jan. 30. The European Union’s statistics office will publish figures for the 17-nation euro area on Feb. 14.
Continued weakness in the euro area, Britain’s biggest trading partner, remains a drag on the U.K. recovery, as does the government’s austerity program. Still, Chancellor of the Exchequer George Osborne said yesterday there can be no letup.
“Credibility is very hard won and easily lost and it would be a huge mistake to put that at risk,” Osborne said at the World Economic Forum annual meeting in Davos, Switzerland.
The Bank of England’s Monetary Policy Committee will have new economic and inflation forecasts at its meeting next month. It paused its bond-buying program in November at 375 billion pounds ($592 billion).
Economists in a Bloomberg survey published on Jan. 17 see the economy growing 0.2 percent this quarter. Reports this month showed services shrank for the first time in two years in December and a construction index fell to a six-month low. A gauge of factory output rose to a 15-month high.
Cold weather in the past week affecting most of Britain threatens to hurt retail sales and construction, adding to the one-time factors that have led to what King has called a “zig- zag pattern” of output.
“Against headwinds, the underlying performance of the economy is doing OK,” said Alan Clarke, an economist at Scotiabank in London. Still, “it’s a pretty damning state of affairs if an outage at an oil rig or a bit of snow makes the difference between a negative and positive GDP result.”
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