The U.K. economy shrank more than economists forecast in the fourth quarter as manufacturers cut output and services stagnated, leaving Britain on the brink of another recession.
Gross domestic product fell 0.2 percent from the third quarter, when it increased 0.6 percent, the Office for National Statistics said in London today. The median forecast of 33 forecasts in a Bloomberg survey was for a drop of 0.1 percent. Public-sector strikes over pensions on Nov. 30 had “some impact” on GDP in the quarter, the statistics office said.
Bank of England Governor Mervyn King said yesterday that policy makers can increase stimulus again if needed to aid the economy and guard against a “renewed severe downturn.” The International Monetary Fund cut its U.K. growth forecasts as the euro-region debt crisis dims prospects for global growth.
“The fourth and first quarters together will be broadly flat,” said Peter Dixon, an economist at Commerzbank AG in London. “It gives additional ammunition to those at the Bank of England who want to do more quantitative easing sooner rather than later and gives some more credence to the idea they will move in February.”
Bank of England policy makers voted unanimously this month to keep their target for bond purchases unchanged, with some officials saying more stimulus is “likely,” minutes published today show.
Pound Gains
The pound rose 0.2 percent against the dollar after the reports and was trading at $1.5576 as of 9:48 a.m. in London, down 0.3 percent on the day. The yield on the 10-year U.K. government bond fell 1 basis points to 2.17 percent.
GDP rose 0.8 percent in the fourth quarter from a year earlier. In 2011, it expanded 0.9 percent versus 2.1 percent in 2010.
Industrial production fell 1.2 percent in the fourth quarter, with manufacturing contracting 0.9 percent, the biggest fall for more than two years, today’s report showed. Construction shrank 0.5 percent. Services (UKISCTMM), accounting for about three quarters of the economy, stagnated with zero growth.
