U.K. Third-Quarter GDP Drop May Be Revised Up After Slump Eased

U.K. Third-Quarter GDP Drop May Be Revised Up After Slump Eased


Nov. 25 (Bloomberg) -- The U.K. economy shrank less than previously estimated in the third quarter as the longest recession on record eased, a survey of economists shows.

Gross domestic product probably fell 0.3 percent from the second quarter, less than the 0.4 percent drop reported on Oct. 23, according to the median of 28 economists’ forecasts in a Bloomberg News survey. The Office for National Statistics will release its second estimate at 9:30 a.m. today in London.

“The shrinkage looks a bit overdone,” said Alan Clarke, an economist at BNP Paribas SA in London. “Other surveys are showing output isn’t nearly as downbeat. I wouldn’t be surprised to see it eventually put close to zero.”

The Bank of England this month expanded its bond purchase plan by 25 billion pounds ($41 billion) after the economy’s third-quarter contraction took policy makers and economists by surprise. Governor Mervyn King said yesterday the bank has been encouraged by signs of a recovery even if it isn’t “particularly strong.”

A revision higher may help Prime Minister Gordon Brown as he tries to erode Conservative Leader David Cameron’s lead in opinion polls in time for the election, due by June. An Ipsos Mori poll in the Observer on Nov. 22 showed the Conservatives with a six-point lead, the least since December.

Recovery Lags

The U.K.’s recovery has lagged behind that of the U.S. and the euro area, which have both returned to growth. Data yesterday showed Germany’s economic growth accelerated in the third quarter, while the U.S. economy expanded at a 2.8 percent annual rate, less than the government reported last month.

The Bank of England forecasts Britain will exit recession in the fourth quarter. The economy will expand 2.2 percent in 2010 and 4.1 percent in 2011, according to policy makers’ projections published on Nov. 11.

Unemployment rose at the slowest pace in 18 months in October, retail sales rose for a second month and the inflation rate increased more than expected, to 1.5 percent. The bank aims to keep inflation at 2 percent.

Policy makers may pause asset purchases after the 200 billion pounds they have pledged to spend by February, Monetary Policy Committee member Adam Posen indicated yesterday. “One hopes that we are coming to the end of the large-scale quantitative easing exercise,” he told lawmakers.

GDP ‘Surprise’

Policy maker Andrew Sentance said in a speech on Nov. 16 that the “surprise” gross domestic product estimate may be revised later, and that such data can be “particularly unreliable” at an economic turning point.

“It will take some time before there is a widespread perception that we’re out of recession,” Sentance said in an interview with Bloomberg Television. “But the broad balance of evidence is that the U.K. economy has started to grow in the second half of this year.”

By contrast, David Blanchflower, who left the rate-setting panel in June, said on Oct. 26 that “there’s every prospect” that the third quarter GDP figure could be revised down.

Banks are still working to shore up their finances after government-led bailouts of Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc during the 2008 financial crisis. Lloyds said yesterday it plans to raise a record 13.4 billion pounds in the country’s biggest rights offering.

None of the economists surveyed predicted a downward revision in today’s data. Six of them forecast the estimate will remain unchanged, 19 said it will change to a 0.3 percent drop and three said that it will be 0.2 percent.

The report today will show any revisions to output indicators on services, manufacturing and construction, and a breakdown of spending during the third quarter. The statistics office will release a further GDP estimate on Dec. 22.

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