Britain's economy on brink of recession?

Britain's economy has probably picked up over the summer, though any third quarter growth will not change a picture of an economy teetering on the brink of recession as crucial growth drivers such as manufacturing are stalling.

hidden December 20, 2014 06:54:26 IST
Britain's economy on brink of recession?

London: Britain's economy has probably picked up over the summer, though any third quarter growth will not change a picture of an economy teetering on the brink of recession as crucial growth drivers such as manufacturing are stalling.

The Bank of England launched a fresh round of quantitative easing in early October, pumping another 75 billion pounds of cash into the economy, as policymakers warned that the euro crisis threatens to push Britain into recession.

Britains economy on brink of recession

The Bank of England launched a fresh round of quantitative easing in early October, pumping another 75 billion pounds of cash into the economy, as policymakers warned that the euro crisis threatens to push Britain into recession. Flickr

The Office for National Statistics will publish the preliminary GDP figures for the third quarter at 0930 GMT, and economists polled by Reuters forecast quarterly growth of 0.4 percent for the period.

However, most of this is seen as a mere rebound from weak growth of 0.1 percent in the second quarter when an extra holiday for Britain's royal wedding and supply-chain disruptions caused by the tsunami in Japan shaved off as much as 0.5 percentage points from quarterly growth.

"We don't think that the third quarter will be a relevant steer to what's going to happen in the fourth quarter and beyond," said Investec economist Philip Shaw.

However, the manufacturing Purchasing Managers' Index (PMI) for October may shed more light on the state of the economy, Shaw said. "We tend to have the view that the recovery of the PMI in September was a sort of mirage."

Economists see the PMI - due at 0928 GMT - falling to a level of 50, reversing most of September's surprise jump to 51.1 and indicating a stagnation in manufacturing, one of the few bright spots of Britain's sluggish recovery so far.

"PMI is going to be an interesting bellwether as it is one of the first major Q4 indicators," Shaw said.

Britain's business secretary Vince Cable told Reuters in an interview on Monday that the country can still avoid recession. But several BoE policymakers have raised the prospect of a decline in output over the winter, and a string of surveys have painted a bleak picture.

Consumer confidence slumped to levels that previously heralded the start of a recession and the CBI industry lobby's survey showed that manufacturers suffered the biggest drop in orders in a year and expected to cut production.

With unemployment already at a 17-year high in the three months to August and many households worried about job security and their own finances, the pressure is rising on the government to ease its austerity drive and do more to boost growth.

Finance minister George Osborne's Treasury is trying to come up with ways to increase growth without compromising the government's pledge to erase the deficit of some 10 percent of gross domestic product over the next five years.

Reuters

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