Britain's economy in mild recession, to grow in Q2 - poll

By @ibtimes on

The British economy is languishing in a mild recession but will return to modest growth by April-June as the Bank of England maintains its ultra-loose monetary policy and the euro zone muddles through its debt crisis, a Reuters poll found.

The poll of around 50 economists, taken over the past week, saw median forecasts suggesting the economy would contract 0.1 percent in the current quarter, as it did in the dying months of 2011, thus meeting the technical definition of recession.

Economists gave a median 50 percent chance of recession, in line with a poll taken in December.

We are not anticipating a very sharp slowdown, just a continuation of pretty anaemic growth. Provided we continue the 'muddling through' scenario in the euro zone the outlook in the UK looks better for the second half, said David Tinsley at BNP Paribas.

The euro zone, Britain's main trading partner, will wallow in a mild recession until the second half of this year, assuming the region's sovereign debt crisis does not flare out of control.

But fears of Greece chaotically defaulting on its debt and plunging the bloc into further turmoil have tempered views.

More immediate threats to growth largely derived from the euro zone crisis mean that conditions are likely to get worse before they improve again, but we are confident that the turning point should arrive in 2012, albeit marking the start of another tentative recovery period, said Danielle Haralambous at 4CAST.

Gross domestic product will expand 0.5 percent this year, the lowest projection in 30 polls, but growth is seen returning to a more respectable 1.7 percent in 2013.

Seven forecasters predicted a contraction this year compared to only four last month, with the most pessimistic expecting the economy to shrink 1.3 percent.

Having flatlined for a year, the economy grew 0.5 percent in the third quarter of 2012 but that growth was driven by government spending and cash-strapped consumers have cut back on shopping as they fear for their jobs amidst another recession.

British consumer morale hit its lowest in almost three years in December as households became much more pessimistic but retail sales are expected to have been more buoyant last month in the run up to the key Christmas trading period.

Unemployment, which figures on Wednesday showed rose to a 17-year high of 8.4 percent in November, is seen climbing further and peaking at 8.9 percent at the end of this year.

Such is the likely weakness of the economy this year, it is unavoidable to conclude that unemployment will, nevertheless, rise significantly as the year progresses, said Brian Hilliard at Societe Generale.

Inflation, running at 4.2 percent in December, is seen dropping to the central bank's two percent target in final three months of this year, a quarter earlier than previously expected.

The Bank is seen keeping interest rates on hold at the record low of 0.5 percent until July 2013 at the earliest and none of the economists polled saw any rate hike until next year.

The central bank has already injected 275 billion pounds into the money supply through its quantitative easing programme to reduce borrowing costs and there is little doubt amongst economists that more is to come.

The Bank's Monetary Policy Committee (MPC) will announce an extra 50 billion pounds, probably in February, and eventually spend 350 billion pounds, economists forecast.

(Polling by Ashrith Rao and Ruby Cherian; Editing by Ross Finley and Toby Chopra)

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