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Thursday, April 25, 2013

UK Avoids a Triple-Dip Recession on 0.3% Growth

George Osborne meets China Vice Premier
George Osborne meets China Vice Premier (Photo credit: HM Treasury)
By Bloomberg

London, Apr.25, daily stocks .- Britain’s economy avoided a triple- dip recession in the first quarter with expansion that exceeded economists’ forecasts and will provide relief to a government criticized for failing to foster a recovery.
Gross domestic product rose 0.3 percent in the period, the Office for National Statistics said today in London. The median forecast of 37 economists in a Bloomberg News survey was for 0.1 percent growth. From a year earlier, GDP rose 0.6 percent, the most since the fourth quarter of 2011. The pound surged.
Chancellor of the Exchequer George Osborne’s austerity plan has come under pressure after Fitch Ratings downgraded the U.K. last week and the International Monetary Fund said the government should relax fiscal tightening to foster growth. Yesterday the Treasury and the Bank of England extended their credit-boosting program as they warned that risks of renewed stresses in bank funding markets remain because of the euro-area crisis.
“The Funding for Lending extension is relatively positive. It will limit damage, but it won’t drive the economy toward strong growth,” said Joost Beaumont, an economist at ABN Amro Holding NV in Amsterdam. “The external picture has worsened and domestically you still have the factors that have been at play for a while, high inflation, austerity, tight credit conditions.”
Services rose 0.6 percent in the first quarter from the previous three months, boosted by distribution, hotels and restaurants. Production increased 0.2 percent, led by a 3.2 percent surge in mining and quarrying, while construction dropped 2.5 percent.

Weather Impact

The pound soared against the dollar after the data were published, rising at least 0.7 percent. Sterling traded at $1.5412 as of 9:33 a.m. London time, up 0.9 percent from yesterday. Gilts declined, pushing the 10-year yield up 3 basis points to 1.72 percent.
The statistics office said that snowfall and cold weather during the first quarter appear to have had a “limited impact” on GDP. “The strongest evidence was that it reduced retail output in January and March 2013, but boosted demand for electricity and gas,” it said.
Today’s report is a preliminary estimate and based on about 44 percent of the data that will ultimately be available. Six of the 37 economists in the Bloombers survey predicted a contraction.

Below Peak

While the U.S., German and Canadian economies are back above their pre-recession levels, U.K. GDP remains 2.6 percent below its peak in the first quarter of 2008. It means Britain remains mired in its longest peacetime slump of any since at least 1920, according to the National Institute of Economic and Social Research.
The economy has grown 1.2 percent since the third quarter of 2010, just after the Conservative-Liberal Democrat coalition came to power in May of that year.
Recovery prospects are poor, with the debt crisis in the euro area sapping demand in the biggest market for British goods while inflation running at 2.8 percent eats into household incomes. The 17-nation euro region shrank 0.1 percent in the first quarter, according to a Bloomberg survey published on April 11. The official figures will be released on May 15.
Unilever, the world’s second-biggest consumer-goods company, reported the slowest quarterly growth in two years today as demand in Europe was held back by weaker consumer confidence. Sales fell 3.1 percent in Europe, the biggest decline in more than three years, according to the London- and Rotterdam-based company.

U.S. Outlook

A pickup in growth in the U.S. may help. The world’s biggest economy grew in the first quarter at a 3 percent annual rate after expanding at a 0.4 percent pace in the final three months of 2012, according to the median forecast in a survey. The data will be released by the Commerce Department tomorrow.
BOE policy makers have split on the need to provide more stimulus to the economy through quantitative easing. Governor Mervyn King has wanted to buy more bonds for three consecutive months, but has been outvoted by a majority on the nine-member Monetary Policy Committee, minutes of their meetings show.
Fitch Ratings last week became the second ratings company to strip Britain of its top credit grade and the IMF urged Osborne to consider putting a brake on budget cuts as it lowered its 2013 growth forecast to 0.7 percent. Officials from the Washington-based lender will visit London next month to present their audit of the U.K. economy.
Prime Minister David Cameron’s Conservative Party trails behind the Labour opposition by about nine percentage points in recent polls, with a general election just over two years away.
The FLS began in August to give banks access to cheaper funding, provided they pass on the savings to businesses and consumers. The revamp of the program announced yesterday is aimed at boosting lending to smaller firms, while the plan is also being expanded to allow access to some non-bank lenders such as financial leasing corporations. ...
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