City now sees slower paced UK recovery
THE City was left wondering about the future of Britain’s economic recovery following dire and disappointing third-quarter GDP data, which showed a contraction of 0.4 per cent on the previous quarter.
Prime minister Gordon Brown may have promised yesterday that the economy will return to growth by the turn of the year but economists warned that even if the economy did expand in the fourth quarter, the recovery would be more U or W-shaped rather than the V shape that had been hoped for.
Vicky Redwood, UK economist at Capital Economics, said that the third quarter contraction in spite of the large policy stimulus supports the view that this recovery will be more U, or even W, than V-shaped. GDP now looks unlikely to rise by more than one per cent at best next year, she said.
Danny Gabay, director at Fathom Financial Consulting, said: “We fear a relapse in the second half of 2010 as policy stimulus is withdrawn. Hence, our forecast remains for a further modest contraction in UK GDP in 2010 as a whole, and for unemployment to rise significantly above 3m.”
He added: “We expect the UK to experience the weakest and shallowest recovery of the major economies, because it faces the stiffest headwinds and has done the least to address the structural imbalances that persist.”
Analysts had been widely expecting a rise of around 0.2 per cent and the disappointing data may mean that the UK is only the major economy to have contracted in the third quarter. US GDP data is released on Thursday.