UK Growth Worse Than Expected: Schroders

Azad Zangana, European Economist at Schroders, comments on this morning’s downwards revision to UK GDP for Q4 2012

“The Office for National Statistics published its revised estimate for GDP growth for the final three months of 2011. The latest estimate showed the economy contracted by more than previously estimated. Q4 GDP was revised down from -0.2% to -0.3%, with most of the downward revision being made to household and government expenditure, while the contribution from inventories was increased.

“In fact, not only was Q4 of 2011 revised down, Q1 was revised down by 0.2%, and Q2 was also revised down by 0.1%, which means the economy did contract in the second quarter of last year where it had previously thought to have been flat.

“The latest GDP data is significantly worse than expected and shows weaker momentum heading into 2012. Growth for 2011 as a whole is now 0.7% rather than the previous estimate of 0.9%. Our view is that the weakness highlighted in this release in combination with the poor production and retail sales data so far for, it is more likely than not that the economy also contracted in the first three months of this year, which would put the UK in a technical recession.

“In terms of monetary policy, the Bank of England will surely react to this by increasing the amount of quantitative easing if not at the next meeting, then certainly by May.”