Britain probably out of recession as one-offs boost growth

Published October 24, 2012

| Reuters

Britain probably came out of recession between July and September, economic growth numbers are widely expected to show later on Thursday, but the dangers of a relapse loom large.

A Reuters poll showed that Britain's economy is expected to post 0.6 percent quarterly growth after companies recovered production lost due to an extra public holiday in June and ticket sales for the Olympic and Paralympic Games added a boost.

Such a rise would be the strongest in two years and a relief for the government of Conservatives and Liberal Democrats, under pressure after a series of gaffes and from public disenchantment with efforts to erase a huge budget deficit.

The Reuters poll reflected the unusually large degree of uncertainty caused by one-off influences on economic output.

Forecasts for the gross domestic product (GDP) data, which the Office for National Statistics will publish at 0830 GMT, ranged widely from unchanged GDP to a 1.1 percent rise, following the 0.4 percent drop in the second quarter.

Bank of England Governor Mervyn King warned on Tuesday that economic recovery would be slow despite the expected bounce, saying the cooling of the fast-growing economies of India, China and Brazil posed new dangers.

Meanwhile the euro zone - Britain's main export market - seems to be heading for recession as powerhouse Germany is sucked into the bloc's economic quagmire.

Nevertheless, investors scaled back expectations for another cash boost from the BoE as King said policymakers would think "long and hard" before extending the currently approved 375 billion pounds ($601 billion) of quantitative easing through bond purchases.

Britain has not fully recovered the output lost during the 2008-2009 slump that has left many Britons worse off and the economy slipped back into recession at the end of last year.

While the Labour opposition in parliament is blaming the government's plan of tax increases and spending cuts for the relapse, finance minister George Osborne has pointed to the euro zone debt crisis and tight credit conditions.

Wednesday's data will provide numbers for the main sectors of the economy but no specifics on consumer spending or business investment.

GDP is all but certain to have grown between July and September after industrial production showed the biggest monthly bounce since 1987 in July and retail sales posted the sharpest quarterly rise in over 2 years in the three months to September.

Economists estimate that the rebound from production lost due to the extra holiday to celebrate Queen Elizabeth's 60 years on the throne in June will add around 0.5 percent to GDP.

The Office for National Statistics said the ticket sales for the Olympics and Paralympics will add another 0.2 percent.

Think tank NIESR estimated that the economy posted growth of 0.8 percent in the third quarter after the 0.4 percent drop, though they added that the underlying rate was likely to be 0.2-0.3 percent when stripping out the one-off effects.

($1 = 0.6239 British pounds)

(Reporting by Sven Egenter; Editing by Ruth Pitchford)

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