UK economic growth accelerated more than previously estimated in the third quarter in a surge that the Bank of England says is unlikely to be repeated as Europe’s debt crisis curbs bank lending and dents confidence.
Gross domestic product (gdp) rose 0.6 per cent from the previous quarter, faster than the 0.5 per cent previously estimated, the Office for National Statistics said in London. The economy stalled in the three months through June, according to new data, compared with a previous figure of 0.1 per cent growth.
The Bank of England, which has restarted bond purchases to aid the recovery, said yesterday that the UK economy may fail to grow in the current quarter and the first part of 2012 as the euro area heads toward a recession. Some officials said more stimulus may be needed as the currency region’s “substantial challenges” pose a threat to Britain.
“Thursday’s data doesn’t change the fact that the fourth quarter will be much weaker,” said Philip Rush, an economist at Nomura International Plc in London. “The Bank of England is still concerned about how weak growth is now and is likely to vote for more quantitative easing” in 2012.
From a year earlier, the economy grew 0.5 percent, according to the statistics office. It said recent data “point towards a rather fragile economic picture.”
During the nine quarters of the recovery, the economy has gained just over half of the output lost during five quarters of contraction during the recession.
Deficit
The pound was little changed against the dollar after the data were published, and traded at $1.5612 as of 10:02 am in London, up 0.2 per cent from yesterday. Gilts stayed higher, with the two-year yield two basis points lower at 0.36 percent. Ten- year yields were 1 basis point lower at 2.06 percent. They fell to a record-low 2.016 percent yesterday.
Britain’s current account deficit widened to £15.2 billion ($23.9 billion) in the third quarter from £7.4 billion in the previous three months.
That’s the highest since records began in 1955. As a percentage of GDP, the deficit is the highest since 1990. The increase in the deficit was driven by a larger goods deficit and lower investment income.
Consumer spending was unchanged in the third quarter, Thursday’s report showed. Government spending rose 0.2 percent, less than the 0.9 percent previously estimated. Exports declined 0.8 percent on the quarter, while imports rose 0.5 percent, and net trade subtracted 0.4 percentage points from growth.
Difficult Year
Inventories rose 2.9 billion pounds, contributing 0.6 percentage points to growth. In a separate report, the statistics office said business investment rose 0.3 percent in the third quarter from the previous three months and was up 4.3 percent from a year earlier.
Bank of England Deputy Governor Charles Bean said this week that the U.K. is facing a “difficult” 2012, while Chief Economist Spencer Dale has said there is a risk of at least one quarter of contraction. Fellow policy maker Ben Broadbent said there is a “material chance of a technical recession,” which is two consecutive quarters of contraction.
Kingfisher Plc (KGF), Europe’s largest home-improvement retailer, said on Dec. 1 that the “short-term outlook in our major markets remains challenging.”
Confidence Falls
All nine members of the central bank’s Monetary Policy Committee voted to keep the target for gilt buying at 275 billion pounds this month after increasing it by 75 billion pounds in October. While some officials said a “further expansion of the asset purchase program might well become warranted,” this is unlikely to happen until the current round is completed in February.
In the meantime, the economic outlook is darkening. Unemployment is at a 17-year high, while a measure of consumer confidence by GfK NOP Ltd. fell to the lowest in almost three years this month. The European Central Bank said yesterday it will lend euro-area banks a record 489 billion euros ($640 billion) for three years in its latest attempt to keep credit flowing and prevent a recession that would also impact the U.K.
Adding to pressure on Britain’s economy is the government’s fiscal squeeze. Still, Moody’s Investors Service said Dec. 20 that Chancellor of the Exchequer George Osborne’s commitment to the deficit-reduction plan is an “important contributor” to the U.K. holding onto its top credit rating.
“The substantial challenges faced by the euro area posed a threat to the outlook for the U.K.,” the Bank of England said in the minutes of its Dec. 7-8 meeting, published yesterday. “The worst risks had not so far crystallized, but the possibility of their doing so was reflected in continuing strains in bank funding markets and volatility in financial markets more generally.”
