The UK economy shrank less than previously estimated in the third quarter as a jump in construction and fixed investment brought the longest recession on record closer to ending.
Gross domestic product fell 0.2 per cent from the second quarter, compared with a previous measurement of a 0.3 per cent drop, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 24 economists was for a 0.1 per cent contraction. The recession has now shaved 6 per cent off GDP, the statistics office said.
The Confederation of British Industry yesterday raised its 2010 economic growth forecast and said the Bank of England may pause its bond-purchase plan in February. Policy makers have pledged to print 200 billion pounds of new money to stoke spending and shake off Britain’s longest recession on record.
“We’ll have growth returning in the fourth quarter, absolutely,” said George Buckley, chief UK economist at Deutsche Bank AG in London. “The bank will start taking back its policy accommodation next year. There won’t be any more bond purchases, and the first rate increase will be in August.”
The pound was little changed at $1.6046 as of 9:53 am in London. The yield on the two-year government bond was up 1 basis point today at 1.185 per cent.
Recession Damage
The economy contracted 5.1 per cent from a year earlier, more than the 4.9 per cent median forecast in a Bloomberg News survey of 21 economists.
The US economy probably grew an annualized 2.8 per cent in the third quarter, according to the median forecast of 62 economists. The Commerce Department will publish that data at 8:30 am in Washington.
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Construction jumped 1.9 per cent, compared with a previous estimate of a 1.1 per cent drop, the statistics office said. That offset bigger contractions in services and industrial production.
Travis Perkins Plc, the UK building-materials supplier that owns the Wickes home-improvement chain, said December 17 it expects earnings for 2009 to be “at the upper end” of analyst estimates as spending on do-it-yourself projects aided sales.
Fixed investment increased 2.2 per cent, instead of the 0.3 per cent drop previously measured. Government spending rose 0.3 percent and consumer spending increased 0.1 per cent, the statistics office said.
Election Looming
Prime Minister Gordon Brown is trying to revive the economy and rebuild support in time for an election which he must call by June. In an Ipsos-Mori poll published in the Observer on December 20, the opposition Conservatives had support of 43 per cent of voters, a 17 percentage point lead over Brown’s ruling Labour Party.
The economy may already be expanding again. Bank of England policy maker Kate Barker said in an interview last week that economic growth probably resumed in the fourth quarter. Unemployment unexpectedly fell in November for the first time since February 2008.
The Royal Institution of Chartered Surveyors today forecast house prices will rise as much as 2 per cent in 2010. The CBI yesterday raised its 2010 growth forecast to 1.2 per cent from a previous prediction of 0.9 per cent. The group said the central bank will start raising the key interest rate from a record low of 0.5 per cent in the second quarter.
Barker, speaking on December 15, said that the economic pickup may still lapse in 2010.
‘Bumpy’ Recovery
“I’ve always been one of the people who thought that the path of this recovery was likely to be quite bumpy and uneven,” she said. “I wouldn’t rule out the possibility that we’d see another quarter of negative growth.”
The household savings ratio, which measures the proportion of income hoarded by consumers, rose to 8.6 per cent in the third quarter, the most since the first quarter of 1998, the statistics office said.
The current account gap widened to £4.7 billion in the third quarter, or 1.3 per cent of GDP, from £4.4 billion in the previous three months, the statistics office said in a separate report today.