Economy hit as ‘triple dip’ fears grow

The Bank of England. Picture: Getty
The Bank of England. Picture: Getty
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THE British economy is believed to have contracted again in the final three months of last year, official figures this week are expected to show.

Without the Olympic boost that pulled Britain out of recession in the third quarter it is thought businesses struggled to maintain the growth shown in the previous quarter.

Although the country will not officially be back in recession unless it suffers two continuous quarters of contraction, there are fears that a flurry of “triple dip” headlines will hit confidence and become self-fulfilling. And any negative comments from Sir Mervyn King, governor of the Bank of England, in a key speech on Tuesday could spook any businesses still hoping to invest.

Victoria Clarke, economist at Investec, said King’s speech at the Titanic museum in Belfast looked “ominous”.

She added: “We have our fingers crossed that the Bank of England chief says little to trigger a new round of fears that the UK could be sinking into a further period of weakness. This is particularly pertinent given that the governor’s words are due just ahead of fourth-quarter GDP figures, which could mark the start of a UK triple-dip recession.”

Investec’s call is that the economy will “just about make it to flat”, but its estimate was made before weaker-than-expected retail sales figures for December led many economists to come off the fence and predict a contraction.

Howard Archer, chief UK economist at IHS Global Insight, forecasts a dip in output of 0.2 per cent in the fourth quarter of 2012. He says industrial production “clearly suffered an appreciable quarter-on-quarter fall”, while the dominant services sector may have been no better than flat and could even have contracted modestly.

A possible rebound from the struggling construction industry will not have been enough to counter the slump elsewhere, especially given that retail sales volumes actually fell in the key Christmas period.

And Archer warned that while the initial hit will have been partly due to an unwinding of the Olympics boost, there is significant concern that the weakness goes deeper than that and the UK is headed for a genuine triple dip. He has pencilled in 0.2 per cent growth for the current quarter but said that could be vulnerable even to a minor ­disruption such as snow.

And figures on Wednesday are expected to show that employment, which held up well in the last recession, has lost momentum, leaving the claimant count flat in ­December.

With fiscal austerity kicking in further and problems in the Eurozone likely to hamper growth for some time, many will be looking for further help from the Bank of England in the form of more money creation to boost demand and ease credit conditions.

However, with inflation persisting at 2.7 per cent and predicted to top 3 per cent, policymakers would have to feel that the prospects for growth are distant if they are to pull the trigger on further quantitative easing.

Minutes of their latest meeting, published on Wednesday, are expected to show all but arch dove David Miles voting to hold fire.

King’s dilemma on Tuesday is whether to hint at further asset purchases in the months to come, at the risk of his downbeat forecast being seen as merely the tip of the iceberg.