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UK economy to grow this quarter, pace to slow |
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Thursday, 10 December 2009 |
 The British economy will emerge from the longest downturn on record in the current quarter but its growth will be slow and steady as the central bank begins to withdraw its massive stimulus package, a Reuters poll showed.
Median forecasts from the survey taken over the past week showed they
expect the UK economy to grow 0.4 percent in the current quarter,
ending the recession slightly later than the rest of the world’s
richest nations.
Median forecasts from almost 60 economists say
the bank will leave rates at the record low of 0.5 percent until
October at the earliest and end the year at 1.0 percent, in line with a
poll taken last week.
That should give some cheer to UK finance
minister Alistair Darling, who is due to deliver his pre-budget report
later on Wednesday and who is counting on a revival in the economy to
help reduce Britain’s staggering budget deficit.
The poll of
around 40 economists predicted the battered economy will grow between
0.3 and 0.5 percent well into 2011, virtually the same as last month’s
poll. Growth will slow early next year as the government raises
consumption tax and a car scrappage scheme comes to an end.
“We
are slightly more optimistic than last month about growth in 2010, but
still expect the recovery to be relatively slow by historic standards
due to continued credit constraints, the overhang from high household
debt levels and the prospect of future fiscal tightening,” said John
Hawksworth, head of macroeconomics at PricewaterhouseCoopers.
Data
released last month showed the UK economy shrank by 0.3 percent in the
third quarter, the sixth quarterly contraction in a row and confounding
expectations for growth.
Pessimists may point to weak industrial
output and evidence of weak retail sales running into the key Christmas
shopping season.
Medians show economists expect the UK economy to
shrink 4.6 percent this year and then grow 1.1 percent in 2010, in line
with last month’s prediction.
That would be similar to growth
expected in the euro zone next year, but well behind the United States
which is seen bouncing back to 2.6 percent growth next year.
Forecasts for 2010 were relatively wide, highlighting the uncertainty in markets, ranging from 0.3 to 2.0 percent.
Budget blues *
Darling
is due present his pre-budget report later on Wednesday. He is expected
to announce record government borrowing and gilt issuance and a return
to growth will give a ray of hope to the governing Labour party as they
face an election by May next year.
Darling is expected to raise
gilt issuance for the current fiscal year to a record 231 billion
pounds and revise up public sector net borrowing for 2009 10 to 180
billion pounds.
Median forecasts from 13 economists show they
expect the budget deficit for 2009 to be 12.8 percent of GDP and then
dropping slightly to 12.0 percent next year, saddling the country with
the highest deficit on that measure in the G7.
Darling is seen
imposing a one-off tax on bank bonuses while promising to protect
schools, hospitals and policing in a bid to woo voters and close in on
the opposition Conservative Party’s commanding lead in opinion polls.
The
Bank of England has slashed rates to near-zero and has so far said it
will spend 200 billion pounds on its quantitative easing programme of
buying government bonds in an effort to boost the suffering economy.
“We feel that the Bank of England will support the government’s efforts
in tightening fiscal policy by keeping monetary policy very
accommodative — keeping rates low for as long as possible,” said Azad
Zangana at Schroders.
Inflation is seen averaging 2.1 percent this
year and next, not far from the central bank’s 2.0 percent target, and
revised up from last month’s prediction for 2.0 percent.
Source: Reuters
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