UK GDP for 4th quarter dominates the economic week ahead
Another week of vital announcements on the UK economy is dominated by the first estimate of GDP in the fourth quarter. The Office for National Statistics (ONS) will release the data on Tuesday.
Also out on Tuesday are the latest figures on public finances and the public sector net borrowing requirement (PSNBR) which are expected to show slightly less government borrowing in December 2011 than December 2010.
Tuesday will also see the publication of Vince Cable, the business secretary’s report and recommendations on executive pay.
On Wednesday the minutes from the latest meeting of the Bank of England’s Monetary Policy Committee (MPC) will be published and should provide some insight how close the committee came to voting for more quantitative easing and will shed light on the likelihood that they will do so in February’s meeting.
Here are some thoughts on the week ahead for the UK economy from respected forecaster Howard Archer from IHS Global Insight.
GDP in Fourth Quarter 2011
"Data on Tuesday are expected to indicate that GDP was essentially flat quarter-on-quarter in the fourth quarter of 2011 and was up just 1.0% year-on-year. This is seen resulting in overall GDP growth of 0.9% in 2011.
"There a high degree of uncertainty over what the data will show. It is certainly very possible that the economy contracted modestly in the fourth quarter and therefore has one foot through the recession door.
"However, it is not inconceivable that the economy eked out marginal growth in the fourth quarter helped by decent consumer spending in December.
"Tuesday’s first estimate of GDP in the fourth quarter of 2011 is based on the output side of the economy and this suggests to us that the economy was stagnant at best. For the economy to have avoided contracting in the fourth quarter there will clearly need to have been some expansion in the dominant services sector (which accounts for 76.3% of GDP).
"On the expenditure side, there are some grounds for hope that the economy avoided contracting in the fourth quarter. In particular, retail sales grew 1.1% quarter-on-quarter in the fourth quarter.
"We see modest contraction in the early months of 2012 before the economy stabilizes towards the middle of the year and returns to gradual growth in the second half. As a result, we forecast UK GDP growth to be limited to 0.3% in 2012."
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Public Finances in December
"The public finances data for December are expected to show modest improvement compared to a year earlier. Specifically, we forecast the Public Sector Net Borrowing Requirement (PSNBR) excluding financial interventions to have narrowed to £14.3 billion in December from a shortfall of £15.9 billion in December 2010.
"However, it seems inevitable that the public finances will be increasingly pressurized over the coming months by weakened economic activity eating into tax revenues and pushing up unemployment benefit claims. There will be a lagged impact of the economy’s loss of momentum in recent months and it is likely not yet being fully reflected in the public finance figures.
"As a result, we forecast GDP growth to be limited to just 0.3% overall in 2012. This fuels our concern that Chancellor George Osborne may not be able to reduce the PSNBR to £120 billion in fiscal 2012/13 as forecast in November’s Autumn Statement (it was raised appreciably from a previous forecast of £101 billion in 2012/13).
"There is therefore a very real danger that the Chancellor will before long face the difficult decision of accepting further slippage in his fiscal targets or imposing more fiscal tightening on a struggling economy. Indeed, he could well face having to consider this as early as the March 2012 budget if the serious downside risks to growth materialize in the near term. Moody’s recent warning that the Eurozone crisis is putting the UK’s AAA rating at risk highlights the potential problems facing Mr. Osborne."
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Minutes of January Bank of England MPC Meeting
"The economy faces a daunting start to 2012. This is clearly of concern to the Bank of England and we expect the minutes of the January Monetary Policy Committee to open the door wide to more Quantitative Easing in February.
"The January MPC meeting saw no change in monetary policy from the MPC after it had voted for a further £75 billion of Quantitative Easing (QE), taking the stock up to £275 billion, at its October 2011 meeting. This is scheduled to take through to early February to enact. Interest rates were kept at 0.50%.
"We believe that it is odds-on that the MPC will pull the QE trigger again in February most likely with a £50 billion bullet. This would take the stock up to £325 billion.
"We believe that a further £50 billion of QE is highly likely to follow in the second quarter (most probably May). This would take the stock up to £375 billion. Furthermore, it is highly possible that the Bank of England could ultimately take the stock of QE even higher than £375 billion.
"It is very clear that interest rates will not rise for some considerable time to come – we do not expect any hike until at least the second half of 2013 and it currently looks eminently possible that the Bank of England could keep interest rates down at 0.50% through to 2014."
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