Friday 30 September 2016

Britain risks sinking into recession by end of the year

Published 10/08/2016 | 02:30

Concerns over British economy grow amid sterling's longest losing streak since May
Concerns over British economy grow amid sterling's longest losing streak since May

The UK economy suffered a "marked slowdown" in the three months to the end of July and may slip into a recession from the tail end of the year, a British think tank has warned.

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Estimates suggest GDP growth of just 0.3pc in the period, compared with 0.6pc in the previous three months, according to the London-based National Institute of Economic and Social Research (NIESR).

The think tank said estimates suggest output actually shrunk by 0.2pc last month.

James Warren, research fellow at NIESR, cautioned the monthly data is volatile, but predicted the UK would fall into recession between the latter stages of this year and the end of 2017.

"We estimate that in the three months to July the UK economy grew by 0.3pc, a marked economic slowdown," Mr Warren said.

"The month-on-month profile suggests that the third quarter has got off to a weak start, with output declining in July.

"Our estimates suggest that there is around an evens chance of a technical recession by the end of 2017."

Any slowdown in the UK economy is expected to have a knock-on effect on Ireland, although experts do not expect a recession in the UK would mean one here.

The National Treasury Management Agency (NTMA) has estimated that for every 1pc fall in UK GDP, Ireland's growth could fall between 0.3pc and 0.8pc. "Growth this year may not be much affected, 2017 may see the impact," the agency said, in a recent note to investors.

Finance Minister Michael Noonan has already said October's Budget would not be affected by the vote.

There was some upbeat data yesterday.

Officials figures showed that industrial output grew at the fastest rate since 1999 in the second quarter, with "very few" respondents reporting an impact from uncertainty around the June 23 vote.

"Any uncertainties in the run-up to the referendum seem to have had little impact on production, with very few respondents to our surveys reporting it as an issue," Office for National Statistics chief economist Joe Grice said.

But yesterday saw further pressure on sterling, as the pound fell below $1.30 for the first time in almost a month, before recovering fractionally.

The currency dropped for a fifth day and ceded ground to all of its 16 major peers.

Sterling is suffering its longest losing streak since May after the Bank of England cut interest rates for the first time since 2009 in its policy announcement last week, while exceeding economists' expectations on quantitative easing.

The pound was depressed further after Bank of England policy maker Ian McCafferty warned in 'The Times' newspaper yesterday that further rate reductions and QE may be required. (Additional reporting Bloomberg)

Irish Independent

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