Britain out of recession in Q3 but more QE coming: survey
September 14, 2012, 12:21 pm TWN
LONDON -- Britain will escape from recession in the current quarter but that will not stop the Bank of England from beefing up its quantitative easing program with another 50 billion pounds in November, according to a Reuters poll.
The economy will bounce back to 0.6 percent growth this quarter, boosted by extra working days, better weather and the ticket sales and tourism generated by London's hosting of the Olympic Games, the poll of 50 economists taken this week found.
But it will then only expand between 0.2 and 0.4 percent per quarter through to the end of next year. Those consensus forecasts are little changed from a poll taken last month.
"We'll get a bounce back in the third quarter but the underlying story is still pretty soft. The eurozone is in recession, the U.S. growth story is weakening and Asia is weakening," said James Knightley at ING Financial Markets.
There is a 70-percent chance the Bank will add to the 325 billion pounds it has already pumped into the economy through its asset purchase program, the poll found, with the majority of respondents saying it would act in November.
The Bank will then shut down its printing presses at 425 billion pounds, in forecasts unchanged from a poll taken two weeks ago. The highest forecast predicted 500 billion pounds of QE — around one-third of gross domestic product.
Monetary Policy Committee member David Miles said in a speech on Tuesday he was open-minded about expanded QE. New MPC member Ian McCafferty took a cautious line on the need for more in a parliamentary committee appearance, saying his decision would hinge on a clearer view of the economy's health.
Britain fell back into its second recession in four years at the turn of the year as tough government austerity measures and the eurozone debt crisis stifled the economy.
Gross domestic product (GDP) contracted for a third quarter between April and June, by 0.5 percent, depressed by one-off factors including unusually wet weather and an extra public holiday to mark Queen Elizabeth's 60 years on the throne.
GDP will end the current year 0.3 percent smaller than how it started, knocked by a downturn in its biggest export market, the eurozone. But it will expand 1.2 percent in 2013, according to the median forecast, which slipped for a third month.
Data on Wednesday showed the number of Britons claiming unemployment benefit unexpectedly fell in August by the largest amount since June 2010 as companies created new jobs. That raised some hopes that a stabilizing labor market will help pave the way for an economic recovery.
However, hopes the eurozone economy will improve this year have ebbed away and economists polled by Reuters now expect a modest return to growth in 2013, helped by the region's financial firewalls coming into force.