Britain shows strong growth before more expected gloom

27th November 2012, Comments 0 comments

Britain's economy emerged from recession in the third quarter with robust growth of 1.0 percent, official data confirmed on Tuesday, in what was set to be only a brief respite from world financial strains.

"UK gross domestic product (GDP) in volume terms increased by 1.0 percent between the second and third quarter of 2012, unrevised from the previously published estimate," the Office for National Statistics said in a statement.

An initial ONS estimate last month showed Britain -- a member of the European Union but not the eurozone -- powered out of its longest double-dip recession since the 1950s with a GDP gain of 1.0 percent between July and September.

But Britain's strongest quarter-on-quarter rate for five years came thanks to one-off factors such as the London Olympic Games.

"Quarterly UK GDP growth in Q3 has been left unrevised in the second estimate at a solid one percent, but most of this reflected temporary factors and evidence is building that activity in the fourth quarter has relapsed," said Vicky Redwood, chief UK economist at the Capital Economics research group.

"The spending breakdown showed a decent rise in consumer spending of 0.6 percent quarter-on-quarter, but at least part of this reflected an Olympics boost."

The ONS added that British GDP had contracted by 0.1 percent in the third quarter on an annual basis, compared with initial estimates of zero growth.

The Bank of England (BoE) earlier this month cut its forecast for British economic expansion and predicted low growth for the next three years owing to the eurozone crisis, tight credit conditions and inflationary pressures.

GDP expansion was predicted to average 1.0 percent in 2013, the central bank said in its latest quarterly report. That compared with the previous forecast of around 2.0 percent given in August.

Adding to the gloom, the BoE's outgoing head Mervyn King declared that activity could shrink again in the fourth quarter of 2012.

Global growth was meanwhile set for a sharp slowdown next year and the eurozone debt crisis "remains the greatest threat to the world economy at present," the Organisation for Economic Cooperation and Development warned on Tuesday.

The OECD, which groups together many major industrialised countries, also slashed the outlook for 2013 growth in its 34-nation zone to 1.4 percent, from the previous forecast of 2.2 percent.

Britain sank into the first phase of a double dip recession in 2008 as a result of the devastating global financial crisis that sparked a number of vast banking bailouts.

The economy rebounded in late 2009 but struggled to stage a convincing recovery and fell back into a second downturn in late 2011, which lasted for three quarters, as the eurozone crisis loomed large.

Activity has been hit hard also by deficit-slashing austerity measures from the nation's Conservative-Liberal Democrat coalition government.

The BoE has sought to aid the recovery by slashing its key interest rate to a record low of 0.50 percent, where it has stood since March 2009, when it also launched its radical quantitative easing (QE) stimulus policy.

The bank's monetary policy committee recently decided to pause its QE programme at £375 billion ($601 billion, 464 billion euros) after Britain's escape from recession.

Under QE, the central bank creates cash that is used to purchase assets such as government and corporate bonds in an attempt to boost lending by retail banks, and in turn, economic activity.

Britain meanwhile on Monday named Canadian central bank chief Mark Carney as the new Bank of England governor, the first time a foreigner has been chosen to lead the institution which is in a period of enormous change.

Finance minister George Osborne told lawmakers on Monday that the 47-year-old Carney was the "outstanding central banker of his generation."

Carney, who is currently governor of the Bank of Canada and chair of the global Financial Stability Board (FSB), will take over from King, who has led the BoE since 2003 and is due to step down on June 30 next year.

In his role at the FSB, Carney has been involved in dealing with some of the fallout from the global financial crisis and fighting the eurozone's long-running sovereign debt crisis.

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© 2012 AFP

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