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LOWER FACTORY OUTPUT

Britain faces 'triple dip' recession risk

London, January 26, 2013

Britain's economy shrank more than expected at the end of 2012 with a North Sea oil production slump, lower factory output and a hangover from London's Olympics pushing it perilously close to a "triple-dip" recession.

The country's gross domestic product fell 0.3 per cent in the fourth quarter, the Office for National Statistics said yesterday, sharper than a 0.1pc decline forecast by analysts.

The news is a blow for Britain's Conservative-led government, which a day earlier defended its austerity programme against criticism from the International Monetary Fund. It needs solid growth to meet its budget targets, keep a triple-A debt rating and bolster its chances of winning a 2015 election.

Sterling fell to its lowest in 13 and a half months against the euro and hit a five-month low against the dollar in response to the data. The euro was also buoyed by a stronger-than-expected German Ifo sentiment survey.

"There are no positive takeaways from today's first (GDP)estimate," said Lee Hopley, chief economist for the EEF manufacturers' association. "Even assuming some unwinding of activity from the Olympics boost in the previous quarter, this still leaves no real signs of underlying growth in the economy."

Britain's economy is now 3.3pc smaller than its peak in the first quarter of 2008, having recovered only about half the output lost during the financial crisis - a worse performance than most other major economies.

The country slipped back into recession in the last three months of 2011, and only emerged from it in the third quarter of 2012, after a boost from the London Olympics.

After a bout of snowy weather in January - which is likely to have hit spending and output - the risk is that the economy will continue to shrink in the first three months of this year, technically pushing it into a rare "triple dip" recession.

Britain's biggest department store group, John Lewis, said earlier yesterday that snow was responsible for its sales growth stalling in the latest week.

In economic terms, the picture remains one of stagnation over the past year. But politically, the latest dip in national output is more incendiary.

"Stagnation is going to be the theme for the next couple of quarters or so. This obviously brings the government's strategy into sharp relief and also the (Bank of England) strategy of maintaining or not sanctioning further monetary policy action," said Rob Wood at Berenberg Bank.

"The Bank of England were forecasting a return to some growth in the first quarter and that is likely to be disappointed."-Reuters




Tags: Britain | Recession |

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