UK economy ´may have contracted in Q3 for first time in 13 years´ - economist
Tuesday, October 11, 2005 3:14:31 PM
afxpress.com
UK economy 'may have contracted in Q3 for first time in 13 years' - economist LONDON (AFX) - The UK economy may have contracted for the first time in 13 years during the third quarter, a leading London-based economic consultancy warned today
Though its base case scenario is for 0.2 pct quarterly GDP growth in the three months to September, Capital Economics said the dire UK trade data for August suggests that GDP may in fact have fallen
Its chief economist Jonathan Loynes said the likely widening in the trade deficit during the quarter from the previous quarter suggests that the negative effect on real growth could be as big as 1 pct
A monthly trade in goods and services deficit of 4 bln stg in September (similar to that in July and August once the Hurricane Katrina effect is excluded) would give a Q3 trade deficit of 12 bln stg against Q2's 9.8 bln
This 2.2 bln widening, said Loynes, is equivalent to 0.7 pct of quarterly nominal GDP and would reduce the level of nominal GDP by that amount, other things being equal
"Provided then that the other components of growth behaved in a similar way as they did in Q2, this could mean that GDP fell in the third quarter for the first time since the second quarter of 1992," he said
Loynes conceded that some other elements of GDP will make stronger contributions than they did in Q2, when the economy expanded by 0.5 pct
"Stockbuilding, in particular, knocked 0.6 pct off real GDP growth in Q2, fully offsetting the positive effect from net trade," he said
Even if there were some offsetting components the economy may only just expand by 0.2 pct during the quarter, the smallest since Q2 1996, said Loynes
That, he said, would leave GDP on track to expand by just 1.5 pct or so in 2005, well below the Bank of England's 2.0 pct forecast
If so, the rate-setting Monetary Policy Committee will be forced to cut back its 2.0 pct 2005 growth forecast in its November Inflation Report, escalating expectations of another interest rate cut during the month
Third quarter growth of 0.2 pct would also leave Chancellor of the Exchequer Gordon Brown facing mounting difficulties on the public finance front, said Loynes
"The weakness of activity and the likely impact on borrowing increases the likelihood that, at some point, taxes will need to rise to put the public finances back onto a more sustainable footing," he added |
