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