The U.K. economy crept back into growth in the fourth quarter, data out Tuesday showed, narrowly emerging from a deep recession that began in the second quarter of 2008. However, growth in the fourth quarter was far less than expected, raising questions about a possible extension of the Bank of England’s quantitative easing, or QE, policy and worries about a double-dip recession. Below, economists react.
Very disappointing. This is crawling out of recession. Not just disappointment on the services side, but also the industrial production figures. We seem to have ended the quarter in pretty weak shape. I think it will reopen the debate about whether the Bank of England will consider expanding QE at its February meeting. – Brian Hilliard, Societe Generale
The U.K. last recorded positive GDP growth in 1Q08 and has since contracted by 6% in what has been the most severe recession since the depression era. At this stage we only get an industry breakdown, which showed that services grew also by only 0.1%, as did production, while construction was flat. …. At the moment lead indicators are pointing to a robust recovery, with purchasing managers’ indices consistent with GDP growth of 2%+ in year-over-year terms. However, we are concerned that these are maybe a little optimistic. – James Knightley, ING Bank
Clearly a lot weaker than the market was expecting. And I guess more importantly weaker than the Bank of England was forecasting in the November inflation report. Clearly the economy has emerged from recession, albeit with a whimper and I think it underscores the challenges that the U.K. economy continues to face as we go through this year. … On the basis that the [BOE’s] GDP forecast has been undershot one imagines all things being equal the inflation forecast similarly will be undershot in the medium term…it does suggest the Bank of England will be thinking seriously about undertaking more policy stimulus…You have got to think now that the odds of further stimulus measures in February are increasing. £25 billion would be the obvious possible number, but there’s also uncertainty about how they spread it. – Adam Chester, Lloyds Corporate Markets
This is another desperately disappointing GDP release. While the U.K. officially exited recession in the fourth quarter of 2009, it could only crawl out. GDP growth of 0.1% quarter-on-quarter was well below expectations, with service sector output and industrial production only edging up by 0.1%. Construction output only stagnated after expanding in the previous two quarters. … Indeed, serious economic and financial obstacles stand in the way of significant, sustainable growth, and only marginal growth in the fourth quarter of 2009 reinforces our suspicion that recovery will be gradual and prone to losses of momentum. Straight away at the start of 2010, for example, the economy faces VAT rising back up from 15% to 17.5% while the car scrappage scheme is drawing to a close. – Howard Archer, IHS Global Insight
[W]ith such a significant divergence between the hard and soft data, this release looks like a candidate for revision. However, as things stand, the conclusion we must draw is that the recovery in the U.K. remains tepid. That is very disappointing, both relative to the euro area and in the context of the unprecedented loosening of financial and monetary conditions over the past 12 months. – BNP Paribas
Today’s data … present a big problem for the MPC [the BOE’s monetary policy committee] which has been expecting strong GDP growth to keep inflation on target in the medium term. The biggest impact of the MPC’s past cuts in interest rates has probably already been felt, but with the economy still clearly in intensive care, there is a strong case for more support from policy to boost growth and job creation. – Daiwa Capital Markets Europe
The main aim now must be to ensure that the modest recovery consolidates and slowly gathers momentum. It is critical for both the government and the Monetary Policy Committee to pursue policies that make it possible for business to invest and export. Regulatory burdens must be removed wherever possible, and access to finance improved. A double-dip recession must be avoided at all costs. – David Kern, British Chambers of Commerce