GDP preview: UK economy expected to post zero growth in Q4
Wednesday will see the Office for National Statistics (ONS) deliver its first estimate of GDP in the final quarter of 2011 from October to December.
Economists and the government are braced for no growth and possibly a slight decline. The UK economy has grown by a total of 1.1 per cent in the first nine months of 2011.
The ONS reported 0.5 per cent growth in the first quarter and finally settled on zero growth in the second quarter, revising it down on two separate occasions from its initial estimate of 0.2 per cent growth between April and June. The ONS said the UK economy grew by 0.5 per cent in the third quarter.
Manufacturing data for October, November and December was poor but the construction sector posted growth in those months. The services sector is the largest area of the UK economy, accounting for about 75 per cent of all economic activity in the UK.
The service sector activity index posted growth throughout 2011 though this was minimal in October and November, it accelerated in December. This along with good retail sales figures for December provides some hope that the economy may have eked out some growth in the final quarter of 2011.
Most economists expect the economy to contract in the first quarter of 2012. If that happens and we see a modest contraction in tomorrow’s figures the UK economy will officially enter another recession.
However, some economists think that there is little significance in whether the economy grew or contracted slightly.
Howard Archer, Chief UK & European Economist at IHS Global said: “Confidence-wise it may be modestly helpful if the economy avoided contraction in the fourth quarter. At the end of the day though, it really makes very little material difference whether or not the economy contracted modestly in the fourth quarter of 2011, was flat or expanded modestly.
Whatever the fourth quarter outcome, it is evident that the economy is struggling markedly at the moment and is in serious danger of slipping back into modest recession.”
A fall in GDP will make it more likely that the Bank of England will act earlier to boost the economy with a further round of quantitative easing (QE). Most economists expect the Monetary Policy Committee (MPC) to pull the trigger on a further £50 billion when they next meet in February.
The consensus for GDP growth in 2012 is not clear. The further you go back for a forecast the better it seems to be. The Bank of England expects to see one per cent growth in 2012, though this prediction was made in November 2011.
The government’s own forecaster, the Office for Budget Responsibility (OBR) revised its growth forecast for 2012 in November down to 0.7 per cent. Most other analysts expect the economy to struggle to reach growth of 0.5 per cent in 2012.
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