UK economy 70% at risk of double dip despite better than expected Q3

UK economy 70% at risk of double dip despite better than expected Q3

Tuesday, November 08, 2011

By Gary Jackson 

The British economy enjoyed better than expected growth in the third quarter of 2011, figures published last week showed. However, Britain has a 70% chance of going back into recession unless the eurozone crisis is resolved, according to one think-tank. 

A preliminary estimate by the Office for National Statistics (ONS) says British GDP grew by an annualised 0.5% in the three months to September 30, surpassing the consensus forecast of 0.3% and up from the 0.1% expansion in the previous quarter. 

Despite this, the National Institute of Economic and Social Research's (Niesr) latest report predicts the economy will grow by just 0.9% over the whole of 2011. Growth is tipped to fall to 0.8% in 2012. 

The institute says Britain has a 70% chance of falling back into recession if European leaders "muddle through" the debt crisis rather than achieving a concrete resolution. 

Even with a successful solution to the eurozone's problems, Niesr sees a 50% risk of a further recession over the 2011-12 period. It says recent weak performance was driven by subdued domestic demand rather than the developments on the Continent. 

The ONS data shows manufacturing output rose by 0.5% in the third quarter, reversing the 1.2% fall in the previous three months. Services output increased from 0.2% to 0.7%. But construction's shrank by 0.6% - down from the 1.1% growth of the quarter before. 

However, the ONS says the third quarter's growth benefited from pent-up demand spilling over from the second. Events such as the extra bank holiday for the royal wedding and disruption caused by the Japanese tsunami may have depressed second-quarter activity. 

Furthermore, a series of purchasing managers' indices (PMIs) compiled by financial information provider Markit and the Chartered Institute of Purchasing and Supply suggest the fourth quarter got off to a weak start. 

October's manufacturing PMI indicates activity in the sector fell to a 28-month low as firms were hit by a "substantial reduction" in orders, while the service index shows growth at a modest pace, raising fears recovery will lose momentum in the fourth quarter. 

Better results were seen in the construction PMI, where output rebounded from the broad stagnation reported in September. But commentators note the low confidence in the sector and say sustained growth is by no means assured. 

Originally published by by Gary Jackson.