December 12, 2012 / 4:46 PM / in 5 years

Britain to avoid triple-dip recession, but growth weak: Reuters poll

LONDON (Reuters) - Britain’s economic growth will not be as good as the government hopes in the coming years but there is only a one-in-three chance the country will sink back into recession, a Reuters poll showed on Wednesday.

The poll of almost 60 economists, taken this week, will make disappointing reading for finance minister George Osborne, who presented his half-yearly budget update to parliament last week.

Britain bounced back to growth of 1.0 percent in the third quarter, exiting its second recession in four years, but most of that rebound was driven by the London Olympic Games and extra working days.

It is now seen contracting 0.1 percent this quarter but will grow 0.2 percent in the first three months of 2013, thus avoiding a triple-dip recession. But there is a 35 percent chance of a return to recession in the next 12 months.

“Looking into 2013, we start to see some modest rebound but the headwinds coming from the global economy are likely to see the year start at a slow pace,” said David Page at Lloyds Banking Group.

“We are also concerned about some of the headwinds that the Chancellor (Osborne) is going to maintain in terms of fiscal austerity as we move through 2013.”

Britain will endure more austerity and miss a key debt-cutting goal as the economy looks set to grow far more slowly than the government previously thought, Osborne said last week.

According to the poll, the country’s gross domestic product will expand just 1.1 percent next year and 1.6 percent in 2014, little changed from a poll take a month ago. It is seen ending this year 0.1 percent smaller than it was in January.

That is a gloomier outlook than Osborne, the chancellor of the exchequer, said the Office for Budget Responsibility was predicting. They forecast 1.2 percent growth next year, down from 2.0 percent predicted in March, and 2.0 percent in 2014 - down from 2.7 percent previously.

Twenty-seven out of 52 common contributors from the previous poll cut their GDP forecasts for 2013, while only six scaled them up.


Despite the downward revisions, the Bank of England is not seen tinkering with interest rates. As in recent polls, medians do not show any move from their record low of 0.5 percent until July 2014 at the earliest.

None of the 63 economists questioned see a hike before April 2014 while one sees a cut to 0.25 percent in the second quarter next year.

Bank of England Governor Mervyn King retires in July and the future of the 375 billion pound asset purchase program will be in the hands of his successor, current Bank of Canada governor Mark Carney.

The likelihood of the program being extended has been dropping - it was just 40 percent in a poll taken two weeks ago - and Carney is seen as having a mild bias towards higher rates.

The government decided to take back gilt interest paid to the BoE as part of quantitative easing, tantamount to about 35 billion pounds of extra asset purchases, and after inflation jumped to 2.7 percent in October few expected any move from the central bank when it met last week.

Inflation has held consistently above the Bank’s 2 percent target and is not seen falling to the Bank’s target until 2014, the poll showed.

Spencer Dale, the BOE’s chief economist, said on Wednesday inflation was unlikely to fall back to target for some time and he probably would not have backed a continuation of the asset purchases in November, even if the government had not taken back interest payments.

Polling by Ashrith Doddi and Shaloo Shrivastava. Editing by Jeremy Gaunt

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