Recession

After years of the Fed pumping $85bn a month into financial markets, the strength of the American recovery will be tested. The Federal Reserve chairman is expected to make the symbolic gesture this week of announcing the beginning of the end of QE…

 


Powered by Guardian.co.ukThis article titled “Bernanke set to begin Fed’s tapering of QE – but is the US economy ready?” was written by Heather Stewart and Katie Allen, for The Guardian on Sunday 15th September 2013 20.25 UTC

As Barack Obama gears up to announce Ben Bernanke’s successor, the Federal Reserve chairman is expected to make the deeply symbolic gesture this week of announcing the beginning of the end of quantitative easing – the drastic depression-busting policy that has led the Fed to pump an extraordinary $85bn (£54bn) a month into financial markets.

It will signal the Fed’s belief that the US economy is on the mend, but it could also frighten the markets and hit interest rates. So what exactly is Bernanke doing, why now – and how might it affect the UK and other countries?

What will the Federal Reserve do?

After on Tuesday and Wednesday’s regular policy meeting, the Fed is widely expected to announce that it will start to “taper” its $85bn-a-month quantitative easing (QE) programme, perhaps cutting its monthly purchases of assets such as government bonds by $10bn or $15bn.

Is that good news?

It should be: it means the governors of the Fed, led by the chairman, Bernanke, believe the US economy is strong enough to stand on its own, without support from a constant flow of cheap, electronically created money – though they still have no plans to raise base interest rates from the record low of 0.25%, and they expect to stop adding to QE over a period of up to a year. “We really want to see a situation where central banks should not be pumping money into markets. It’s not a healthy thing to be doing,” says Chris Williamson, chief economist at data provider Markit.

Why are they doing it now?

Economic data is pointing to a modest but steady recovery. House prices have turned, rising by 12% in the year to June. Unemployment has fallen to 7.3%, its lowest level since the end of 2008, albeit partly because many women and retirees have left the workforce.

Since QE on such a huge scale carries its own risks – it can distort financial markets, for example – the Fed is keen to withdraw it once it thinks an upturn is well underway. However, some recent data, including worse-than-expected retail sales figures on Friday, have raised doubts about the health of the upturn.

There’s another reason too: Bernanke’s term as governor ends in January next year, and he may feel that at least making a start on the process of tapering – marking the beginning of the end of the policy emergency that started more than five years ago – would be a fitting end to his tenure.

How will the markets react?

With a shrug, the Fed hopes, since it has carefully communicated its intentions. Scotiabank’s Alan Clarke said: “I think it’s pretty much priced in … Speculation began months ago, the market has already moved and we are still seeing some very robust data. The foot is on the accelerator pedal just a bit more lightly.”

However, a larger-than-expected move could still cause ripples – and a decision not to taper at all would be a shock, though some analysts believe it remains a possibility. Paul Ashworth, US economist at Capital Economics, said: “I don’t think they’ve actually decided on this ahead of time.”

What will investors be looking for?

First, the scale of the reduction in asset purchases. No taper at all might suggest Bernanke and his colleagues have lingering concerns about the health of the economy; a reduction of $20bn a month or more would come as a shock. The tone of the statement, and the chairman’s subsequent press conference, will also be scrutinised, with markets hoping for reassurance that even once tapering is underway, there is no immediate plan to raise interest rates: Bernanke has previously said he doesn’t expect this to take place until unemployment has fallen to 6.5% or below. Williamson said: “I think they will accompany the announcement with a very dovish statement designed not to scare people that the economy is too weak but to reassure stimulus won’t be taken away too quickly.”

What does it mean for the UK?

Long-term interest rates in UK markets have risen sharply since the early summer, at least in part because of the Fed’s announcement on tapering, and that shift, which has a knock-on effect on some mortgage and other loan rates, is likely to continue as the stimulus is progressively withdrawn.

If tapering occurs without setting off a market crash or choking off recovery, it may help to reassure policymakers in the UK that they can tighten policy once the recovery gets firmly under way, without sparking a renewed crisis. David Kern, economic adviser to the British Chamber of Commerce, said: “it will strengthen for me the argument against doing more QE in the UK.”

How will the eurozone be affected?

It could cut both ways: a strengthening US economy is a welcome market for Europe’s exporters, and if the value of the dollar increases against the euro on the prospect of higher interest rates, that will make eurozone goods cheaper.

However, the prospect of an end to QE in the US has also caused bond yields in all major markets to rise, pushing up borrowing costs – including for many governments. That could make life harder for countries such as Spain and Italy that are already in a fiscal tight spot.

What about emerging markets?

Back in May, Bernanke merely had to moot the idea of ending QE to send emerging markets reeling. A side-effect of the unprecedented flood of cheap money under QE has been that banks and other investors have used the cash to make riskier investments in emerging markets. The prospect of that tap being turned off has already seen capital pouring out of emerging markets and currencies, potentially exposing underlying weaknesses in economies that have been flourishing on a ready supply of cheap credit.

“It has triggered all sorts of significant movements around the world out of emerging markets. It’s had big ramifications for India and other parts of Asia,” said Clarke.

Central banks in Brazil and India have been forced to take action to shore up their currencies; Turkey and Indonesia also look vulnerable. Many of these markets have looked calmer in recent weeks, but the concrete fact of tapering could set off a fresh panic.

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USA 

During the press conference held to announce the BoE’s new forward guidance for interest rates, Carney made it clear the MPC plans to stay the course. Interest rates are to remain low, but what does that say about economic recovery, inflation and house prices?..

 


Powered by Guardian.co.ukThis article titled “Five things we learned from the Bank of England inflation report” was written by Phillip Inman, for theguardian.com on Wednesday 7th August 2013 14.37 UTC


1. Interest rates are going to stay low for a very long time

Current predictions say the Bank will only consider raising rates in 2016, but it could be 2017 or 2018 before the economy is considered strong enough to cope with higher rates. It will not consider raising rates until unemployment declines to 7% (from 7.8%), and its own forecast puts unemployment above 7% in 2016.

2. The current economic recovery is fragile

The UK might have seen a 0.9% jump in GDP in the first six months of the year, but the Bank of England is concerned that growth remains weak. The level of GDP is below where it was in 2008 and well below where it would be if the crash hadn’t happened. High unemployment shows there is slack in the economy that can be deployed without causing inflation.

3. Fears of a house price bubble are misplaced

Governor Mark Carney argued that the level of transactions are well below the peak (about a third lower) and house prices are still below the highest point in 2008, so a bubble is a long way off. And anyway, he said, the central bank now monitors the big lenders for dodgy or risky practices, so a repeat of the crazy lending in the first half of the last decade is unlikely.

4. Inflation is not a worry

This is not something the Bank of England has explicitly declared in its quarterly inflation report. It says monetary policy committee is still watching for any signs of inflation. However, there is little pressure from rising wages and it blames the current 2.9% rate (well above the 2% target) on the rising cost of train fares and regulated monopoly suppliers such as those related to water rates and gas prices.

5. More quantitative easing could be on the way

During the press conference held to announce the BoE’s new forward guidance for interest rates, Carney made it clear the MPC plans to “maintain the current highly stimulative stance of monetary policy” and could even extend it. The Bank is unlikely to cut rates further, but could boost QE. It has pumped £375bn into the financial system to promote lending to little avail (it might have been even worse without it, said Carney’s predecessor Lord King). Some analysts argue it should rise to £425bn.

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UK GDP rises by 0.3% exceeding estimates by analysts and avoiding triple-dip disaster. George Osborne: Britain is recovering. But it’s a bumpy recovery. US jobless claims fall by 16,000 to seasonally adjusted 339,000, pointing to slow improvement…



Powered by Guardian.co.ukThis article titled “Poor Spanish and French jobs data but UK economy returns to growth- as it happened” was written by Graeme Wearden and Nick Fletcher, for theguardian.com on Thursday 25th April 2013 13.18 UTC

5.17pm BST

Stock markets in Europe continue rally

European markets have closed on a – mainly – positive note once again. Analysts said the continuing downbeat data from the eurozone – including poor jobless figures from Spain and France – made it ever more likely the European Central Bank would cut interest rates, perhaps as soon as next week.

Looking at the wider picture, there were some reasonable US weekly jobless figures which helped sentiment. And better than expected UK GDP figures encouraged investors in London, even though the data seemed to suggest there would be no action by the Bank of England to stimulate the economy at its meeting next week. So here is the closing snapshot:

• The FTSE 100 finished 10.83 points higher at 6442.59, a 0.17% increase

• Germany's Dax added 0.95% to 7832.86

• France's Cac closed 2.47% lower as the jobless total rose

• Italy's FTSE MIB ended up 0.52%

• Spain's Ibex dipped 0.29%

In the US, the Dow Jones Industrial Average is currently 0.48% higher.

And with that, it's time to close up for the evening. We'll be back tomorrow, so thanks for all your comments and see you then.

5.16pm BST

Italy's centre right party has been making positive noises after a meeting with new prime minister Enrico Letta.

According to Reuters, the party said Letta was open to its economic priorities and there wil be further talks to resolve outstanding issues.

And here's a poll showing the country's split:

5.05pm BST

French jobless figures hit new high

French unemployment figures are out and it's not good.

The number of jobless hit an all time high in March, rising by 1.2% to 3.225m. This is the 23rd monthly rise in a row, and means it has reached the worst level since records began in January 1996.

This is more bad news for president Francois Hollande, whose approval ratings are already at a low. They come despite the president's attempts to promote youth job schemes and allow flexible hiring and firing.

4.59pm BST

Cyprus sets date for vote on bailout package

Cyprus has set a date for the its parliament to vote on the island's EU-IMF sponsored rescue programme, reports Helena Smith. She writes:

Cypriot officials are now saying that the bailout package will be put to a make-or-break vote next week and "probably on Tuesday." The ballot has thrown fresh uncertainty around the rescue programme amid speculation that it may not muster the required majority in the 56-seat House.

Well-briefed insiders say the possibility of the island exiting the euro zone has grown dramatically in recent weeks with many among its business elite backing the idea "as the best way out of the crisis."

Meanwhile, the National Federation of Cypriots in the UK are increasingly speaking out against the unfair treatment that Cyprus has received at the hands of the EU and IMF.

"The troika has extracted its pound of flesh in Cyprus and has made the island pay dearly for the eurozone’s policy failures in Greece and elsewhere. Alternative solutions, including re-capitalisation of the two main Cypriot banks and their effective ‘nationalisation’ by the European Central Bank, were not given the time of day," Peter Droussiotis, who heads the federation, told an audience at the Palace of Westeminster last night.

 "Such measured solutions, which could have been further calibrated by a more managed contraction of the banking sector, over a transitional period, were set aside with the result that Cyprus’s economy has now suffered a devastating blow,” he said at a dinner attended by the island's foreign minister and leading British MPs.

4.32pm BST

Still with Germany, the country has raised its growth forecast for the current year from 0.4% to 0.5%, with 1.6% expected in 2014.

4.06pm BST

Merkel says ECB would raise rates if looking at Germany alone

There have been some (perhaps unguarded, perhaps not) comments from German chancellor Angela Merkel about European Central Bank interest rates.

As has become apparent in recent days, the markets have become increasingly convinced the ECB will cut rates at its meeting next week. Disappointing economic figures, not least from Germany itself, in the last few days have only reinforced that view.

But speaking at a savings banking conference Merkel said, in what observers said were unusually outspoken comments, that the ECB would have to raise rates if it were looking at Germany alone. In what could be seen as an acknowledgement that the one size fits all approach to completely divergent economies within the eurozone was flawed, she said (courtesy Reuters):

The ECB is in a difficult position. For Germany it would actually have to raise rates slightly at the moment, but for other countries it would have to do even more for more liquidity to be made available.

Meanwhile Investec poured a smidgeon of cold water on the hopes of a rate cut by the ECB next week. The broker's Victoria Clarke said:

The ECB meets in Bratislava next week with its next monetary policy announcement due at 12.45pm on Thursday and President Draghi’s press conference following at 1.30pm. We judge that the ECB is on the verge of reducing the main refinancing rate either in May or June, but on balance we suspect that move is more likely to come at the June meeting. Hence, whilst a very close call, we see the ECB maintaining the refi rate at 0.75%, the deposit rate at zero and the marginal lending rate at 1.5%.

Chancellor Angela Merkel at a savings bank conference. Photograph: Reuters/Fabrizio Bensch
Chancellor Angela Merkel at a savings bank conference – With the people, for the People. Photograph: Reuters/Fabrizio Bensch

Updated at 4.30pm BST

3.39pm BST

IMF official calls for Europe to boost growth

The IMF has said Europe must strengthen its growth prospects, otherwise it could fall into long term stagnation.

In a speech in London (apologies for being a bit UK-centric today) David Lipton said:

There is…a risk Europe could fall into stagnation, which would have very serious implications for households, companies, banks and other bedrock institutions.

So, to decisiveliy avoid that dangerous downside, policymakers must act now to strengthen the prospects for growth.

And the austerity versus growth debate goes on…

IMF members Christine Lagarde, Tharman Shanmugaratnam and David Lipton (left). Photograph: Stephen Jaffe/Getty Images
IMF members Christine Lagarde, Tharman Shanmugaratnam and David Lipton (left). Photograph: Stephen Jaffe/Getty Images

2.18pm BST

Video: Britain dodges the triple-dip recession

Here's a video clip of this morning's GDP announcement:

And leaving you with that, I am handing over to my colleague Nick Fletcher.

Updated at 3.55pm BST

2.13pm BST

Key event

There's encouraging economic data to report in the US as well — the number of people signing on for jobless benefit fall by 16,000 last week.

At 339,000, the initial jobless claims was the second-lowest reading since the financial crisis began.

2.11pm BST

Brian Reading of Lombard Street isn't getting carried away by today's GDP data:

Near stagnation for the rest of this year would validate the OBR’s 0.6% year-on-year growth forecast. A belly-dancer’s belly-wobbles don’t show whether she is gaining or losing weight. Too much attention is paid to first estimates.

2.07pm BST

It’s time for a late lunchtime round-up:

Britain has returned to growth and avoided a triple-dip recession, with its economy expanded by 0.3% in the first quarter of the year.

Chancellor George Osborne hailed today's GDP data as a sign that the UK is recovering (see his statement here). But Labour's Ed Balls argued that Britain still "urgently" needed a new fiscal plan (see 11.01am).

As my colleague Heather Stewart explains:

The key services sector expanded by 0.6% on the quarter, according to the ONS, while industrial production also grew, by 0.2% – though much of that was accounted for by North Sea output. The struggling construction sector declined by 2.5%.

• Heather's news story is here: UK avoids triple-dip recession with better-than-expected 0.3% GDP growth

Joe Grice, the chief economist of the ONS, told reporters that Britain was experiencing a bumpy and shallow recovery (see press conference highlights from 9.34am onwards)

• Business leaders have welcomed the news that the UK is growing (see 11.30am).

• But with the UK still 2.6% smaller than at its peak in 2008, there's no reason to rejoice (see Larry Elliott's analysis). Britain's recovery from the shock of the financial crisis remains slower than in the 1930s (see graph here).

• The news is likely to strengthen George Osborne's hand ahead of the arrival of International Monetary Fund officials next week (see here).

• In the City, the pound has rallied against the US dollar – up two cents this afternoon at .546.

UK GDP
UK GDP, on a quarterly basis, since the start of 2008

1.55pm BST

Stephen Lewis, chief economist at Monument Securities, argues that politicians should focus on making serious structural changes to the UK economy rather than scrapping over the pace of fiscal cutbacks.

In a research note Lewis also suggsts that Britain's economy is not faring too badly given the damage suffered by its financial sector when the crisis began:

It can hardly be doubted that the UK economy was among those suffering the most severe structural damage in the crisis, given its over-reliance on financial services. It would have been a reasonable expectation in 2009 that the UK would take longer than many other advanced economies to pull out of economic depression and that, while in depression, its GDP trajectory would be weaker than most other nations'. In the event, the UK's economy has lagged the performance of those with sounder structures, such as Germany and the USA.

On the other hand, it has been performing a good deal better than the economies of Spain and Italy, where the structural problems were less obvious in 2009. When viewed in this broad perspective, it makes little sense to argue that the UK is suffering peculiarly strong headwinds on account of the strategy Mr Osborne has chosen to follow. If it were, its GDP might be contracting at a 2-3% annual rate, which is the fate of several other European economies at the moment.

This is not to say that the UK's growth outlook might not be even stronger than it currently appears but action that addresses structural weaknesses is likely to be more effective than tweaking macroeconomic policies.

To fashion measures that strengthen the economy's structure is more of a challenge to politicians than to argue over macroeconomic settings. That may be one reason why comparatively little progress has been made towards structural reform.

1.26pm BST

Over on Comment is Free, Will Hutton is making the case for the government to push through structural reforms and create a new bad bank, rather than take comfort in today's data.

It's here: Don't be fooled by the GDP figures – Britain needs to change course

Here's a flavour:

Osborne has never looked economic reality squarely in the eye – that in 2008 Britain suffered a massive credit crunch, disabling its banking sector and exposing a vast legacy of private debt in an economy which had grossly over-invested in property, construction and financial services. Economies after such shocks and with such grievous imbalances need a prolonged period of convalescence. It is imperative, knowing that the private sector must retrench, that the public sector does all it can to compensate.

Over the past three years, Osborne has stubbornly done the opposite, blindly believing in the private sector's magical properties which the state can only impair. He has stood back, attempting to slash the deficit and generally disengaging. Events have forced him to moderate his position, with the beginnings of an industrial policy along with bank reform, but it has been too little, too late and with too little conviction. The pity is that today's news will reinforce his position, easing the political pressure for change.

1.11pm BST

Two years ago, George Osborne pledged to deliver "A Britain carried aloft by the march of the makers" in his March 2011 budget.

Today's GDP data, though, show that it's the services sector (+0.6%) which is delivering most of the growth rather than industry (+0.2% — mainly due to higher oil production), while manufacturing declined by 0.3%.

That doesn't suggest that the much-discussed rebalancing of the UK economy is completed.

Richard Barley of the Wall Street Journal warns:

The big picture is still one of an economy that is only creeping forwards: GDP is still 2.6% below 2008's peak and has risen just 0.4% over the past 18 months. With global economic data showing signs of a slowdown, it isn't clear the first quarter's expansion is sustainable.

Meanwhile, there is precious little sign of the rebalancing of the U.K. economy that policy makers like Bank of England Governor Mervyn King say is necessary: all of the growth in the first quarter was in the services sector, up 0.6%, while manufacturing contracted 0.3%. But the City still appears to be in the doldrums: business services and finance increased just 0.2% in the quarter.

12.44pm BST

Today's rise in GDP comes as economists warn that inflation in the UK could rise over the 3% mark again this summer.

Jeremy Cook, chief economist at World First, told BBC News that inflationary pressures mean it is vital that the UK economy keeps growing so workers can push for pay rises (inflation is currently 2.8%, while wages are rising at just 1%)

Cook explained:

If we start to see profits in manufacturing and construction, which were poor in this quarter, come alongside what the services sector is doing then members of those sectors can go to their companies, ask for wage increases, probably get them.

And therefore the cost of living for you and me become a little bit more favourable.

12.15pm BST

Osborne: it’s not an easy recovery

George Osborne, April 25th
Photograph: Sky News

Sky News just broadcast an interview with George Osborne in which the chancellor was cautiously upbeat about the UK economy following today's GDP data.

Osborne said:

It is not as easy a path out of recovery as anyone would have hoped a few years ago.

But added that Brritain has "won credibility around the world" for the way it has handled the crisis.

Osborne appeared relaxed about the prospect of next month's IMF visit. He argued that the pace of UK fiscal consolidation, or "the pace opf the cuts if you like" as he put it, is appropriate and consistent with the IMF's own guidance.

The chancellor added that manufacturing exports are growing slower than he'd like — which he partly blamed on the weakness on key markets in Europe.

12.07pm BST

The deputy prime minister, Nick Clegg, has taken a cautious view of today's GDP data:

Clegg said:

I don't want anyone to think that somehow we are out of the woods yet. We have still got a lot of work to do. The healing of the British economy is taking longer than we had anticipated and we will continue to work hard to make sure the country and the economy grow from strength to strength.

More here: Chancellor welcomes 0.3% economic growth, but Lib Dems are cautious

11.58am BST

Does the Osborne fightback start here?

Last week was pretty dire for George Osborne. It began with the International Monetary Fund suggesting his economic plan should be changed, and ended with MPs giving a scathing verdict on his new scheme to help first-time buyers (via a nasty rise in unemployment and Fitch downgrading Britain's AAA rating).

By the weekend, the chancellor appeared to be on the mat. But today's GDP data could be the moment that his fortunes change.

The IMF is due in London next week for a healthcheck on the UK economy — Osborne can now point to a growing economy — at a time when the eurozone remains stuck in recession.

It's even possible that the ONS will revise its historic data, and conclude that Britain did not contract between the fouth-quarter of 2011 and the second quarter of 2012. That would mean the dreaded double-dip never actually happened…

11.30am BST

GDP: the reaction

The general reaction to today's growth figures has been quite positive.

Graeme Leach, chief economist at the Institute of Directors, called it "good news just when we needed it".

John Cridland, CBI director general, argues that the UK now really needs "a recovery in manufacturing output, helped by a brighter global outlook":

And Rob Carnell of ING Bank called it "one in the eye" for the International Monetary Fund, after last week's criticism of the UK government from senior IMF staff.

There's a full, comprehensive round-up of reaction to today's GDP data, here: UK avoids triple-dip recession – full reaction

11.01am BST

Balls: Urgent action still needed

Ed Balls on UK GDP
Ed Balls on UK GDP Photograph: /BBC News

Ed Balls, shadow chancellor, has given a rather muted response to today's GDP data, repeating his call for the chancellor to adjust the pace of his fiscal plans.

Here's his full response:

These lacklustre figures show our economy is only just back to where it was six months ago and continue the picture of flatlining we have seen since the last spending review. David Cameron and George Osborne have now given us the slowest recovery for over 100 years.

This stagnation in our economy is the reason why people are worse off than when this government came to office. They took an economy that was starting to grow strongly, with falling unemployment and a falling deficit, and delivered stagnation, rising unemployment and £245 billion more borrowing than planned. The government’s economic policies have failed and Britain’s families and businesses continue to pay the price.

If we’re to have a strong and sustained recovery, and catch up all the ground we have lost over the last few years, we need urgent action to kickstart our economy and strengthen it for the long-term – as Labour and the IMF have warned. We need radical bank reform and a jobs and growth plan, including building thousands of affordable homes and a compulsory jobs guarantee for the long term unemployed. And instead of a tax cut for millionaires, we need a lower 10p starting rate of tax to ease the squeeze on millions of people on middle and low incomes.

The longer we continue to bump along the bottom the more long term damage will be done. Britain’s struggling families and businesses cannot afford another two years of this.”

Updated at 11.05am BST

10.54am BST

Slowest recovery since the Great Depression

This graph (from our Datablog) shows how the UK economy actually recovered faster after the Great Depression:

The Labour Party makes the same point, and tries to pin the blame on the prime minister.

10.42am BST

Alex Hern: UK is stagnating

In the New Statesman, Alex Hern is warning that "stagnation is still the name of the game" in the UK:

Our economic system is basically built around a paradigm of real economic growth in the two to three per cent range. We can handle short-term deviations from that norm, but the long-term trend must remain the same.

Growth much below that isn't growth at all; it's stagnation by another name. On top of that, real GDP growth isn't the only figure we heard today; we also know the growth per capita. And in a country with a rising population like ours, we need to be growing just for that to stand still.

As it is, GDP per capita fell by 0.3 per cent in the last quarter. The nation is getting richer, but its people are still getting poorer

More here: GDP grows by 0.3 per cent

And this graph from the ONS shows how GDP is stil below its 2008 peak:

UK GDP - main components, Q1 2013
Photograph: ONS

10.30am BST

Larry Elliott: It’s helpful for Osborne

Our economics editor Larry Elliott has analysed today's GDP data. He points out that while 0.3% growth is 'resonably solid' under the circumstances, but unspectacular by historic standards.

And it's enough to spare Osborne the 'disaster' of presiding over a triple-dip recession:

Larry writes:

The actual figure was reasonably solid. The service sector – which accounts for 75% of the economy – grew by 0.6% on the quarter, while a bounce back in North Sea oil output helped industrial production grow by 0.2%. Had it not been for the 2.5% quarterly drop in the still depressed construction sector, growth would have been around 0.5% in the first quarter, quite close to its long-term trend.

It is not all good news. Despite the growth in early 2013, the economy is still 2.6% below its peak in early 2008 when the recession began. And, as the Office for National Statistics noted, the economy is no bigger now than it was 18 months ago – a point Ed Balls will no doubt be making over the coming weeks and months.

But make no mistake, this number is helpful to Osborne, who was quick to say that there were encouraging signs that the economy is healing. Had Thursday's number been negative – even by just 0.1% – that claim would have been impossible to make.

More here: Unspectacular GDP data will take political heat off George Osborne

10.21am BST

Cable: it doesn’t feel like a recovery yet

Out in Brazil, business secretary Vince Cable has welcomed the news that Britain has avoided falling back into recession. But he also points to several weaknesses in the UK economy, including construction (which suffered that 2.5% contraction).

Here's Cable's full comment:

We've always said the road to recovery would be a marathon, not a sprint. 

Today's figures are modestly encouraging and taken alongside other indicators such as employment figures, suggest that things are going in the right direction.

However there is still a long way to go and some serious issues such as the systemic lack of bank lending to SMEs, the weakness in the construction sector and the need to press further on trade and exports, which I am doing now on my visit to Brazil.

These issues all need to be addressed before people feel like the economy is genuinely starting to recover.

10.17am BST

And here's what a bumpy, shallow recovery looks like (via the Guardian's Datablog)

UK GDP quarter-by-quarter
Photograph: Datablog

10.10am BST

ONS: Britain’s bumpy and shallow recovery

The ONS's chief economist Joe Grice said the 0.3 per cent growth registered from January to the end of March fitted the pattern in recent years.

"Today's figures seem to be not out of line with recent history of an upward trend, but one that is quite bumpy and shallow," he said.

The services sector growth of 0.6 per cent was "broadly based" and offset falls in manufacturing at the beginning of the year and a sharp fall in construction output.

But within the services sector, car sales were a major growth area after a spending surge in the first three months, said ONS statastician Rob Doody.

The services sector is now 0.7 per cent above its peak. However, manufacturing remains 10 per cent below the peak in 2008 and construction is 18 per cent below its peak, said Grice.

(via our economics correspondent, Phillip Inman)

10.06am BST

The full details of today's GDP data can be downloaded here:

Gross Domestic Product: Preliminary Estimate, Q1 2013 Release.

10.04am BST

My colleague Paul Owen is covering all the political news today, including the full reaction from Westminster to today's GDP data, here: Politics Live.

9.57am BST

Pound jumps, but FTSE doesn’t

The pound is rallying on the foreign exchange markets, up almost one-and-a-half cents against the US dollar at .514.

Shares are unmoved, though, as our market reporter Nick Fletcher reports:

The FTSE 100, down 15.85 points ahead of the GDP announcement, edged slightly higher before slipping back to the current 6414.56, down 17.20 points.

9.52am BST

Car sales and oil production fuel growth

Phillip Inman flags up that strong sales of motor vehicles, and a bounce-back in oil production, helped to push UK GDP up in Q1.

From the ONS press conference, he reports:

GDP was rescued by car sales, says the ONS, with the Motor trade element of the services sector showing the strongest growth…

A bounce back in North Sea production after a sharp decline in q4 2012 is also a big factor in the rise this quarter.

9.49am BST

Despite the welcome rise in UK GDP in the last three months, Britain's economy is still 2.6% smaller than its all-time peak in 2008 — shortly before the collapse of Lehman Brothers rocked the financial world and drove many countries into recession.

9.43am BST

Osborne: Britain is recovering

George Osborne has welcomed today's GDP data, arguing it shows that the government is making progress.

Here's the chancellor's statement in full:

Today’s figures are an encouraging sign the economy is healing. Despite a tough economic backdrop, we are making progress.

The deficit is down by a third, businesses have created over a million and a quarter new jobs, and interest rates are at record lows.

We all know there are no easy answers to problems built up over many years, and I can’t promise the road ahead will always be smooth, but by continuing to confront our problems head on, Britain is recovering and we are building an economy fit for the future.

9.40am BST

ONS press conference
Photograph: Sky News

Joe Grice, the head of the ONS, is refusing to make any predictions for how the UK economy may fare in the months ahead.

9.37am BST

Service sector leads the way

Britain's dominant service sector has led the way, putting the UK back to growth and averting the triple-dip.The construction industry, though, continues to suffer an ongoing contraction.

Service sector grew by 0.6% in Q1

Construction sector shrank by 2.5%

Production industries: grew by 0.2%

9.34am BST

Key event

On a year-on-year basis, Britain's GDP is 0.6% larger than a year ago.

Joe Grice of the ONS is explaining that this adds to the picture of a slow, bumpy recovery over the last 12 and 18 months. He's talking about Britain's economy being on a plateau, but one on a slow, upwards trend.

Updated at 9.41am BST

9.31am BST

Triple dip avoided

This is good news for George Osborne, says our economics editor Larry Elliott:

It means the triple-dip fears have been averted – although Labour will say that the economy is back to where it was six months ago.

Updated at 9.32am BST

9.30am BST

UK GDP released – Britain avoids recession

UK GDP has grown by 0.3% in the first three months of this year.

That means Britain has avoided falling back into recession.

More to follow

9.25am BST

The GDP data will be announced at a press conferrence at 9.30am sharp in London. Our economics correspondent Phillip Inman is there.

The news is also released to the City at the same moment.

Updated at 9.25am BST

9.20am BST

Just 10 minutes to go until the Office for National Statistics releases its first estimate of UK GDP for the first quarter of 2013, and the predictions and caveats are flying:

A bit of excitement is OK, though

9.12am BST

Surveys of UK firms in recent weeks have suggested that conditions have improved a little in 2013. That's one reason that City economists, on balance, predict a small rise in GDP.

This graph shows 'composite PMI' (a measure of whether companies' output is growing) versus GDP.

GDP vs PMI, to April 2013
Photograph: ING

9.03am BST

Marc Ostwald of Monument Securities says it is 'at best facile' to fret too much about the triple dip right now, as this morning's data will probably be revised.

Ostwald also points out that the consensus forecast of +0.1% in the first quarter would mean Britain's GDP would have risen by +0.3% on a year-on-year basis.

That would actually be quite a good outcome, in light of a very long and arduous winter and its dampening effect on activity, not only in the UK, but across Europe, notwithstanding the other non-weather related headwinds blowing from the Eurozone.

Economist Andrew Lilico argues that it doesn't really matter whether today's data shows a small rise or a small fall.

And in the readers comments below, rafters points to the big picture:

Double dip, triple dip, quadruple dip, what does it matter?

We're just bumping along the bottom like an aircraft failing to take flight. All a short period of growth means is we'll shortly have another dip to add to the number.

8.51am BST

Spanish jobs data shows perils of austerity

Here's our Madrid correspondent Giles Tremlett's take on this morning's dire Spanish unemployment data (see 8.42am)

Is this where austerity gets you? Spain's unemployment rate reached 27 percent in the first quarter of this year, with more than six million unemployed for the first time ever.The figure of 6.2 million unemployed comes from the state statistics agency today. Spain's economy shrank 1.9 percent over the last year, though the speed of decline appeared to be slowing in the first quarter.

Mariano Rajoy's People's party (PP) government is due to introduce further cuts tomorrow. There are also rumours of further pension reform, with the retirement age for Spaniards apparently set to rise above 67. But a change of heart in Brussels will, according to reports in El Pais, see the deficit target softened considerably this year – raising it from 4.5 percent of GDP to six percent or above. Last year's deficit (excluding bank bailouts) was 7.1 percent.

Spain's jobless rate is also more than three times as high as the UK — where it hit 7.9% last week.

8.42am BST

George Osborne has often blamed the eurozone's debt crisis for causing some of Britain's economic ills, and the latest Spanish unemployment data (just released) certainly confirms the scale of the crisis in Europe.

The Spanish jobless rate hit 27.1% in the first quarter of 2013 – even worse than economists had expected. Spain is already deep in recession, and its GDP is expected to shrink by 1.6% this year.

Updated at 8.43am BST

8.34am BST

The bigger picture…

As many of you are pointing out in the comments below, the triple-dip question shouldn't distract from the fact that Britain's economy has been bumping along for a while.

On a quarterly basis GDP has risen, or fallen (see the chart at 7.34am) but the broad picture is of an economy stagnating for most of the last two years.

Also worth noting that we only get the preliminary estimate of GDP this morning – it will probably be revised.

8.25am BST

GDP predictions?

Any predictions for UK GDP today? If so, do post them in the comments below. (Full disclosure: I plumped for +0.2% in the office sweepstake).

8.14am BST

Calm in the City

The London stock market has opened, and shares and sterling have risen slightly in early trading.

FTSE 100: up 25 points at 6456, + 0.4%. That's a new three-week high.

The pound is also up nearly half a cent against the dollar, at .530.

The word in the City is that Britain will probably avoid a triple dip, but that the wider economic landscape remains troubled.

As Michael Hewson of CMC Markets put it:

The amount of growth to all intents and purposes is likely to be economically insignificant, but in a political context it is very important for the credibility of the government’s current policy, being the difference between a triple dip recession or not.

Updated at 8.14am BST

8.04am BST

What the economists are saying

We've rounded-up some of the City economist forecasts for GDP. here: Will Britain slide into a triple-dip recession?

Updated at 8.04am BST

7.59am BST

Bad weather could be key

Fears of a triple-dip recession have been fuelled by the grim winter weather which Britain suffered at the start of 2013. Heavy snowfall forced some factories to close, and also deterred many people from venturing onto the high street to spend.

As we wrote last month: Cold weather makes triple-dip recession more likely, economists fear

City analyst James Knightley reckons that the UK economy was flat in the first three months of 2013. A reading of 0% change to GDP would mean that the UK was not back in recession.

Knightley explains:

Today’s GDP numbers will tell us if the UK has returned to technical recession for the third time in 5 years.

Bad weather in January and March make this a close call.

7.34am BST

Has Britain suffered a triple-dip?

Good morning. Britain will learn today whether it has slumped into an unprecedented triple-dip recession when economic output data for the first quarter of 2013 is published.

The data, released at 9.30am by the Office for National Statistics, is eagerly awaited both in the City and in Westminster.

A negative GDP reading will plunge the UK economy into its third recession (defined as two consecutive quarters of negative growth), since the financial crisis began in 2008.

UK GDP since 2008
Photograph: Office for National Statistics

As well as a measure of the UK's economic strength, the latest GDP data is also a scorecard of George Osborne's performance.

The chancellor is already under pressure from the International Monetary Fund to relax the pace of his fiscal programme, and stinging from the loss of Britain's AAA rating with two credit rating agencies this year.

Many economists expect that Britain probably eked out a little growth at the start of this year. The City consensus is that UK GDP expanded by 0.1% between January and March. But some economists have predicted a negative reading, which would follow the 0.3% contraction in the last quarter of 2012.

Britain is also the first major country to report GDP data for the first quarter of 2013, so today's data could show how the global economy is faring.

Updated at 7.39am BST

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Whether economy has contracted for second quarter in row may be a trivial detail that distracts from bigger, more dismal picture. Forecasters are split over whether the UK economy managed to grow in the first quarter of this year or contracted again…

 


Powered by Guardian.co.ukThis article titled “Will Britain slide into a triple-dip recession?” was written by Katie Allen, for theguardian.com on Monday 22nd April 2013 11.52 UTC

The wait to find out if the UK slipped into a triple-dip recession is over this week, with official GDP data out on Thursday. Forecasters are split over whether the UK economy managed to eke out some growth in the first quarter of this year or contracted again.

The consensus forecast in a Reuters poll is for a tiny 0.1% quarter-on-quarter uptick. But predictions range from a 0.2% drop in GDP to growth of 0.3%.

The Office for National Statistics (ONS) said the economy slipped by 0.3% in the fourth quarter. Thursday will be statisticians' first take of three for the first quarter and economists caution that the numbers, as well as data for previous quarters, could well be revised either up or down.

But if the figures do show two successive quarters of contraction from the beginning of October to the end of March it will mark a triple-dip recession – unprecedented in living memory.

Still, many economists also warn that whether the UK officially slipped into a triple-dip or not is a trivial detail that distracts from the bigger picture of an economy facing headwinds from squeezed consumers, an austerity drive and struggling industry.

Here is a roundup of views ahead of Thursday's 9.30am figures.

Brian Hilliard, Société Générale

The first estimate of GDP is an output measure on two months' hard data for industrial production, construction output and services output available to the ONS together with forecasts for the third month. However, only one month's services data is published before the GDP release. That makes it rather difficult to make a sensible forecast, but here goes! Based on reasonable assumptions for March, Q1 growth in industrial production should be between 0% and 0.1% quarter-on-quarter. Construction output should fall by between 3% and 6% and services should rise by about 0.2% quarter-on-quarter. The weather will have been a dampening factor in construction output and unfortunately that weakness is likely to outweigh the growth in services. The result should be a fall in GDP of about 0.1% quarter-on-quarter. This will inevitably spawn "triple dip" headlines. The real story is modest underlying growth but not high enough to reduce the output gap.

Nick Bate, Bank of America Merrill Lynch

We think the preliminary estimate of Q1 GDP may show zero growth over the quarter. Indeed, we think the balance of risks may be skewed a little to the downside … Monthly data available suggests that output in both the industrial and services sectors may have risen a little over the quarter, but another notable fall in construction output may have knocked around 0.2 percentage points off GDP growth.

Vicky Redwood, Capital Economics

It is questionable whether it should be considered a "true" triple-dip … The 0.3% quarterly drop in real GDP in the fourth quarter (Q4) can probably be wholly accounted for by the reversal of the Olympics boost which supported output in the third quarter. Without the Olympics effect, output would probably have avoided a contraction. In any case, any triple dip might well be revised away in the future. The double dip between Q4 2011 and Q2 2012 was initially estimated to consist of three quarterly contractions in GDP of 0.2%, 0.2% and 0.7%. But the two 0.2% contractions are now estimated to be 0.1% drops. So it is already being called the double dip that almost didn't happen.

Nonetheless, we should not let the somewhat meaningless debate about the triple dip distract from the big picture – that this recovery is still depressingly dismal. To rub salt into the wound, the US Q1 GDP figures also released this week are set to show growth rising by 3.2% annualised (a quarterly rise of about 0.8%). This will leave the divergence between the two economies looking even more striking.

Howard Archer, IHS Global Insight

In reality, it makes very little difference whether the economy expanded modestly in the first quarter, contracted marginally or was flat. However, it would be good for psychological/confidence reasons if the economy could dodge contraction in the first quarter and, therefore, avoid nasty and potentially damaging headlines about "triple-dip recession".

We put the odds of GDP contraction in the first quarter (and hence a triple-dip recession) at around 30%. So we reckon there is a 70% chance that the economy was either flat or grew marginally.

We suspect that expansion in the dominant service sector was strong enough to allow the economy to eke out marginal GDP growth of 0.1 to 0.2% quarter-on-quarter in the first quarter. This would result in year-on-year GDP growth of 0.4% year-on-year. Admittedly, it looks like there was substantial contraction in construction output in the first quarter, but the sector only accounts for 6.8% of GDP, while the services sector accounts for 77%. Meanwhile, industrial production was likely essentially flat in the first quarter, given that there was a marked rebound in output in February from January's sharp drop.

Ruth Lea, economic adviser to Arbuthnot Banking Group

On the basis of ONS data so far available and survey material, GDP for 2013 Q1 could be a tad positive, thus avoiding a triple dip. But whether or not a triple dip is avoided, economic performance is weak. The latest labour market data showed an increase in unemployment, the February trade data deteriorated and bank lending to the business sector fell in February. The IMF downgraded its forecasts for the UK last week, with its chief economist, Olivier Blanchard, saying the chancellor should reconsider his "strict" austerity programme, and Fitch's downgraded Britain's triple-A rating to AA+.

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The UK Office for National Statistics reports 0.7% sales fall despite a near 1% rise in food sales. Sales volumes declined as department stores and homeware retailers suffered from March snow. The decline was smaller than the -0.8% forecast…

 


Powered by Guardian.co.ukThis article titled “Retail sales hit by March snow” was written by Phillip Inman, economics correspondent, for theguardian.com on Thursday 18th April 2013 10.15 UTC

Retail sales fell by more than expected in March after heavy snowfall deterred shoppers from venturing out to buy clothes and homeware.

According to official figures, sales volumes declined by 0.7% last month despite a near 1% rise in food sales as department stores and homeware retailers suffered from the cold weather.

James Knightley, UK economist at ING bank, said although sales were weaker than expected, they offered "a little more reassurance" that the UK would avoid falling into its third recession since the financial crisis began.

"Nonetheless, yesterday's employment numbers were not great and softer global figures still lead us to believe that the Bank of England will come in with more stimulus, potentially as soon as the May meeting when they produce new economic forecasts," he said.

First-quarter growth figures for the UK are released in a week, and economists remain split on whether they will show an unprecedented triple-dip downturn.

Chris Williamson, chief economist at Markit, the financial data provider, said higher retail sales figures at the end of last year to February showed the economy had regained some of its momentum, but, like Knightley, he warned the bounce could be short-lived.

"The upward trend in sales has followed a steady improvement in consumer confidence since late last year. Surveys of households show confidence had picked up further in March, linked in part to people being busier at work, which both improved job security and raised take-home pay. However, there is a worry that rising unemployment, weak pay growth and high inflation could reverse this trend in coming months," he said.

Woman picking up shopping bags
Retail sales have proved volatile in recent months, with a 0.7% decline in January. Photograph: Winston Davidian/Getty Images

Alan Clarke, UK economist at Scotia Bank, said the retail figures were disappointing and reflected a weakening economy that could still show a triple-dip recession.

"With wage inflation at around 1% and headline inflation at close to 3%, the maths don't add up to much in the way of consumer spending growth – rather the opposite – falling consumer spending by mid-year," he said. "Let's hope the Bank of England's new tactic of targeting business investment works."

Retail sales have proved volatile in recent months, with a 0.7% decline in January, when snow was again a factor, being followed by a 2.1% rise in February.

The Office for National Statistics said the March figures pushed sales over the year into a decline of 0.5%.

Knightley said: "The figure was always going to be weak, with the heavy snowfall in the month, which particularly hurt clothing retailers (with sales down 3.1% month on month), given they had started to stock their spring fashion ranges.

"The ONS reports that it was the coldest March since 1962 with department stores and household goods stores also particularly depressed (down 4% and 6.2% month on month respectively)."

High petrol prices also deterred motorists from filling up their tanks – the ONS figures showed a 1% decline in petrol sales.

The poor figures were rescued only by the consistent rise of food sales, which was repeated in March. Food sales rose 0.9%, the largest gain since July 2011.

Sales of goods over the internet gained momentum, with a 6% rise.

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UK economy contracts more than anticipated by 0.3% in the last quarter of 2012 and is not expected to regain peak level for another two years, marking slowest recovery in a century. A triple-dip recession will occur if the economy contracts again in Q1 2013…



Powered by Guardian.co.ukThis article titled “Britain heading for triple-dip recession as GDP shrinks 0.3% in fourth quarter” was written by Phillip Inman, economics correspondent, for guardian.co.uk on Friday 25th January 2013 12.09 UTC

Britain could be on course for its third recession in four years after the economy shrank 0.3% in the last three months of 2012.

The figures were worse than expected and could put pressure on the government to consider a “plan B” that would stimulate demand.

A fall in manufacturing output dragged down the economy, countering a small rise in construction between October and December, according to the Office for National Statistics. The economy achieved zero growth for the year as a whole.

Sterling dived on the news, reflecting fears the UK will lose its AAA credit rating and status as a haven economy, though the stock market shrugged off the news, remaining at a four-year high.

George Osborne said he would not “run away” from the problems facing the UK economy: “We have a reminder today that Britain faces a very difficult economic situation. A reminder that last year was particularly difficult, that we face problems at home because of the debts built up over many years and problems abroad with the eurozone, where we export most of our products, in recession.”

The shadow chancellor, Ed Balls, called on Osborne to introduce policies which will “kickstart our flat-lining economy”. “A plan B now should include a compulsory jobs guarantee for the long-term unemployed and a temporary VAT cut to boost family incomes and our struggling high streets,” said Balls.

The Trades Union Congress (TUC) general secretary, Frances O’Grady, said the chancellor’s austerity plan had “pushed the UK economy to the brink of an unprecedented triple-dip recession”.

A triple-dip recession will occur if the economy contracts again in the first quarter of 2013. The economy remains 3.5% below its peak in 2007 and is not expected to regain its previous level for at least another two years, making it the longest recovery in 100 years.

“We are now midway through the coalition’s term of office and its economic strategy has been a complete disaster. We remain as dependent on the City as we did before the financial crash,” O’Grady said.

In the 10 quarters since the election, manufacturing has contracted by 0.4% and the construction sector has shrunk by 9%, the TUC said.

The contraction in GDP in the fourth quarter followed a near 1% rise in the third quarter when the economy was boosted by the Olympics.

A survey of economists had predicted a 0.1% drop in GDP in the fourth quarter, though several prominent analysts had forecast a bigger contraction after a series of surveys last year showed the manufacturing industry suffering from a downturn in exports.

The ONS data showed that within the manufacturing sector, mining and quarrying output suffered its biggest decline since records began because of maintenance on North Sea oil and gas fields.

In the powerhouse services sector activity ground to a halt in the fourth quarter due to the absence of the London Games boost in the previous three months.

The only bright spot was construction, which delivered a 0.3% rise in output. A post-Olympic cut in spending on sport and recreational facilities pushed down the index for government and other services by 0.7%, after an increase of 1.6% in the previous quarter. All Olympic ticket sales were counted in the previous quarter, giving the ailing economy a one-off boost.

Despite the contraction in the economy, employment has remained resilient, with figures this week showing that almost 30 million adults were in a job in the quarter to November, up by more than half a million on the previous year.

The Bank of England governor, Sir Mervyn King, said this week the UK had been slower to recover than most other countries. But he insisted there were signs of a “gentle recovery” under way and asked Britons to be patient.

Lee Hopley, chief economist at EEF, the manufacturers’ lobby group, said there was little positive news from the figures. “Even assuming some unwinding of activity from the Olympics boost in the previous quarter, this still leaves no real signs of underlying growth in the economy. The news from industry was particularly weak, with November’s sharp drop on output contributing to a rather grim fourth quarter and leaving the overall picture for manufacturing in 2012 the weakest since 2009.”

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U.K. manufacturing is down, construction is struggling, exporters are having a torrid time – and then there’s the eurozone recession. Here is a view of the current conditions in the U.K. manufacturing, housing, construction and banking sectors…



Powered by Guardian.co.ukThis article titled “UK economy: the problem sectors” was written by Phillip Inman, economics correspondent, for The Guardian on Friday 7th December 2012 20.32 UTC

Manufacturing

Industrial output is now at its lowest level since May 1992 and manufacturing is 20% down on its peak. Latest figures showed a month-on-month fall of 0.8%, far worse than economists had expected and the 16th consecutive month when manufacturing output was lower than the same month a year earlier.

The Office for National Statistics found most areas of manufacturing were on the slide, with chemical production and wood and paper manufacture leading the downturn.

A fall in the value of the pound and the opening up of new destinations for UK exports – such as Indonesia and Columbia – have failed to lift the sector, which is far more dependent on trade with the euro area than ministers would like. The British Chambers of Commerce said the sector remained well managed and prepared for an upswing, but needed more government help to boost exports to fast developing countries.

Construction

There may be plenty of cranes on the London skyline, but the construction sector outside the capital is dead. Commercial building, the lifeblood of most large firms, has failed to recover from the financial crisis. The hole in the heart of Bradford, where a Westfield shopping centre is already four years late, is an example of building projects that have remained strictly on the drawing board.

Civil engineering has suffered from a lack of infrastructure improvements after a near-£30bn cut in public investment spending. The CBI has urged the government to use the downturn to upgrade the road and rail network. The Treasury encouraging upgrades to the broadband network has failed to counteract falls in investment elsewhere.

Banking

The Bank of England has become increasingly frustrated at the unwillingness of banks to increase their lending to businesses and households. In the summer it set up an £80bn Funding for Lending scheme that allows banks to offer cheaper loans to customers. Banks have reported using the money to lower mortgage rates, but anecdotal evidence suggest older, more creditworthy customers have gained while first-time buyers remain on the sidelines. More importantly, many economists argue the loans on offer are small in comparison to the size of the problem.

The UK’s major banks remain in a dire financial situation and need to build up their capital reserves to protect themselves against another financial crash. The central bank governor, Sir Mervyn King, insisted earlier this month that UK banks were well-capitalised but said it would be “sensible” to improve their resilience further. He warned “an erosion of confidence” was damaging economic activity, creating “a spiral characteristic of a systemic crisis”.

Trade

British exporters are having a torrid time battling the headwinds of the slowing Chinese economy, the eurozone crisis and uncertainty in the US over the fiscal cliff (the tax rises and spending cuts timed for January which could halt US economic progress in its tracks).

According to the latest figures from the ONS, in the three months to October the country racked up its biggest trade deficit since records began. The trade gap widened to a record £28bn, from £25bn in the quarter ended July, the ONS said, as sales of goods into the rest of the European Union declined sharply.

George Osborne promised more help for exporters with loan and credit guarantees through the government’s UKTI export arm. But the sums remain small compared to the size of export orders and firms seem reluctant to take risks in the current economic environment.

Housing

Housebuilders have largely shed the debts acquired in the crash and become profitable again. But building remains at historic lows. The last time the UK built so few homes was in 1931.

MPs and business groups have called for a 1930s-style house building boom, but with no success so far. Ministers are planning to rip up planning rules to allow developers a clear route on greenfield sites, but even if this plan goes ahead, it will be some time before there are any spades in the ground.

Developers, which already have several years of plots on their books with planning permission, have refused to increase the number of new homes while customers are constrained by high mortgage borrowing costs. They blame the banks for withholding credit or charging too much for credit as the main reason for their inactivity.

Prices are slipping, putting another brake on investment in the sector. Halifax said prices are likely to stay flat next year after a 1.3% fall in 2012. Most families are unwilling to buy homes in a market where prices are falling, though buy-to-let investors have snapped up thousands of homes since the downturn, increasing the size of the rental market.

The eurozone

The machine at the heart of the eurozone is spluttering: the Bundesbank has sliced more than 1 percentage point off its forecast for economic expansion in Germany next year – highlighting severe aftereffects of the sovereign debt crisis.

The German central bank revealed the crushing blow to confidence and growth that has struck the euro area when it cut its projection for growth in 2013 from the 1.6% it had expected six months ago to a grim 0.4%. It also said the German economy, Europe’s largest, will grow only 0.7% this year, down from its previous forecast of 1%. The downgraded forecast shows Germany is no longer immune from the downturn in the rest of the currency bloc.

Separately, the German finance ministry said industrial output fell 2.6% in October, while manufacturing crashed by 2.4%, providing “further evidence that the economy’s backbone is quickly losing steam,” said the ING analyst Carsten Brzeski.

Without an expansive and confident Germany, it is almost certain the eurozone’s double-dip recession will continue into 2013, dragged down by severe contractions in the southern states.

There is also a feedback loop into UK trade should Germany suffer a prolonged fall in demand. Germany and the rest of the EU still comprise over 50% of UK exports, despite the government’s emphasis on redirecting trade elsewhere to rapidly developing economies in Asia, Africa and South America.

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Bank of England governor sees persistently low growth that will last until the next election. Mervyn King cuts 2013 growth forecast to 1% and warns about the possibility of a triple-dip recession. Bank of England keeps “QE option open”…



Powered by Guardian.co.ukThis article titled “UK risks triple-dip recession, Mervyn King warns” was written by Josephine Moulds, for guardian.co.uk on Wednesday 14th November 2012 13.46 UTC

The UK economy risks suffering from a triple-dip recession amid a period of persistently low growth that will last until the next election, the governor of the Bank of England has warned.

Sir Mervyn King cut Britain’s growth forecast to 1% next year and warned that output was more likely than not to remain below pre-crisis levels over the next three years. “There seems a greater risk that the UK economy may be in a period of persistent low growth,” he said on Wednesday.

The UK economy emerged from a double-dip recession in the third quarter of this year, when the economy grew by 1%, but King warned that this was driven by one-off factors. “Continuing the recent zig-zag pattern, output growth is likely to fall back sharply in the fourth quarter as the boost from the Olympics in the summer is reversed – indeed output may shrink a little this quarter,” he said. If that period of contraction continues into 2013, the UK could drop into a triple-dip recession.

At the same time, the Bank significantly raised its inflation forecasts. Inflation is now is expected to reach around 3% in the near-term and not fall back significantly until the second half of 2013, later than previously thought.

UK inflation jumped to a surprise five-month high of 2.7% last month, driven by rises in tuition fees and dearer food bills. Energy price rises over the next few months are likely to drive it even higher.

King said the outlook for inflation was the main reason why the monetary policy committee decided not to expand the quantitative easing (QE) programme in November. He said there were limits to what monetary policy could do to boost an economy undergoing far-reaching adjustments in the wake of the financial crisis and amid severe headwinds from the eurozone debt crisis.

But economists said the bank may still engage in more QE in the future. Howard Archer of IHS Global Insight said: “With economic recovery currently looking feeble, fragile and far from guaranteed, we believe that the Bank of England will ultimately decide to give the economy a further helping hand with a final £50bn of QE. This seems most likely to occur in the first quarter of 2013.”

Labour said this gloomy outlook proved the coalition government’s economic plans were not working. The shadow chancellor, Ed Balls, said: “This sobering report shows why David Cameron and George Osborne’s deeply complacent approach to the economy is so misplaced. Their failing policies have seen two years of almost no growth and the Bank of England is now forecasting lower growth and higher inflation than just a few months ago.”

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U.K. Q3 GDP estimate shows the end of the longest double-dip recession since the second world war. The U.K. economy grows by 1.0% q/q in Q3, beating the forecasts for 0.6% q/q growth. U.S. jobless claims fall, durable good orders rise…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Britain emerges from recession” was written by Josephine Moulds, for guardian.co.uk on Thursday 25th October 2012 14.45 UTC

3.45pm:

Potentially interesting development from ratings agency Fitch on Twitter. Will update as soon as we hear anything.

3.10pm:

Some more impact from the UK GDP figures this morning.

The euro has taken a hit, sinking to a two-week low.

The currency lost 0.6% making €1 worth 80.37p, its weakest since 11th October.

2.55pm:

A ‘Truth and Reconcilliation’ style tribunal should be held into the collapse of the Anglo Irish Bank – the financial institution that almost bankrupted Ireland. Henry McDonald, our Ireland correspondent, reports:

The cost of rescuing and nationalising Anglo Irish and other banks has cost the Irish taxpayers billions of euros and saddled the state with huge debts, which they are seeking help from the EU to cover.

The call for such an inquiry was made today in Dublin at a Transparency International conference focussing on corruption in the Republic.

Dr Jane Suiter, a panelist at the conference, politics lecturer and anti-corruption campaigner, said such a commission would be far cheaper than previous tribunals into Irish political corruption that cost tens of millions of euros.

She warned that the Irish political class may oppose establishing a tribunal into banking given the alleged connections between top bankers, major property speculators and politicians. “I don’t think there is any great appetite for it given that a lot of peope involved were in the major parties,” she said.

2.54pm:

Angela Merkel would not have the backing of her coalition partners to push through a deal to give Greece a loan of €16bn-€20bn, said Otto Fricke a budget spokesman for her junior coalition partner. ekathimerini reports:

Fricke was speaking after Handelsblatt newspaper cited an agreement between the Greek government and its international creditors as saying that Greece will get a loan of 16-20 billion euros to supplement its second rescue package while gaining an extra two years to reach its deficit targets. Germany’s parliament would need to approve the loan.

Fricke, a Free Democratic Party lawmaker, told reporters in Berlin on Thursday that he sees “no majority for such a thing.”

2.34pm:

EC president Herman Van Rompuy has, apparently been and gone from Number 10 Downing Street, with no press conference to announce what was discussed. The press office is still debating whether to put a statement out on what was said. We’ll post anything as soon as we get it.

In the meantime, here’s another picture of the pair when they met earlier today.

Meanwhile, Open Europe is running the headline that Danish prime minister Helle Thorning-Schmidt has threatened to veto the next long-term EU budget if Denmark fails to secure a rebate of 1bn Danish Krone.

2.21pm:

The Coalition’s record on Europe has been “lamentable” especially the “phantom veto” which has harmed relations with EU partners, said Labour MP Chris Leslie at an Open Europe event this afternoon. He said:

That’s not to say UK should never wield veto but it has to be done in a way to safeguard national interests not like in December.

He said Europe still suffers from accountability and democratic deficit. He is hesitant about an in/out referendum because it crowds out debate on reform of structures, institutions and policy areas.

The UK should be leading on reforming the “oil tanker” EU budget, he added, and we should be looking at real term cuts not just a freeze on spending.

1.55pm:

US durable goods orders rose by almost 10% in September, driven by a sharp increase in orders for transportation equipment. That compares with forecasts of a 7% rise, and a 13% slump in August. Durable goods are goods expected to last more than three years, so usually require large investments. A rise suggests buyers are more optimistic about the economy.

Tim Ghriskey, chief investment officer at Solaris Group, said:

We’ve seen weak durable goods orders for a while here, so to see this strong number is heartening. We’ve also heard from a number of companies in the reporting season that September was a weak month for business. This indicates that at least orders of the durables side are strengthening here.

Jobless claims in the US, meanwhile, fell last week, raising hopes that the labour market is healing. The number of Americans filing new claims for unemployment benefits dropped 23,000 to 369,000.

1.40pm:

Briefly back to GDP, the disparity between Britain’s regions increased more than in any other major economy over the past 12 years, according to the Bank of International Settlements, via Sky News’ Ed Conway.

1.36pm:

David Cameron said he will discuss keeping Europe’s costs under control with EC preisdent Herman Van Rompuy today, Retuers reports. Speaking ahead of the talks, but after Van Rompuy arrived, Cameron told reporters:

We have the whole question of the future budget which I’m sure we’ll be discussing today and how important I think it’s to keep our costs and spending under control.

1.24pm:

Greek finance minister Yannis Stournaras is apparently back in business, after discharging himself from hospital (see 11.24am), with reports that he has said the troika will not accept changes to agreed labour measures.

A spokesman for the Democratic Left (DIMAR) has already said it will not vote for the labour reforms as they stand.

1.13pm:

Ireland has received a relatively clean bill of health from the troika of the ECB, the European Comission and the IMF. In a statement following the review mission to Ireland, the troika noted:

Policy implementation remains steadfast despite the challenging external environment, helping Ireland to start to regain market access.

The country is expected to meet its fiscal targets this year and the troika say the authorities are committed to next year’s deficit ceiling of 7.5%. The economy is expected to grow by 0.5% this year, and 1% next.

But, the troika notes:

Unemployment remains unacceptably high, especially among the youth, making job creation and growth a key priority.

12.06pm:

There is a huge amount of regional disparity in this ‘recovery’, as the reader showmaster notes in the comments below. Sky is running a good graphic on this (in the highlights on the right).

The unemployment slide is probably the most telling, with a rate of 9.9% in the North East, compared with 5.8% in south west England.

Union Unite also notes that growth is too focused on London and does not reflect the ‘real’ economy. General secretary, Len McCluskey, said:

Too much of the growth is centred on London and the service sector, a more realistic indicator is that the construction industry is still in the doldrums and its contribution to the last quarter’s GDP figures declined by 2.5 per cent.

With some 90% of the cuts still to come, consumer confidence is what we really need to recover, but with crippling income and housing cuts heading for the low waged there will be little chance of hope spreading beyond the M25.

11.43am:

The European Parliament has rejected the nomination of Yves Mersch, president of the central bank of Luxembourg, to the executive board of the European Central Bank.

On Monday, the economic affairs committee rejected his nomination, saying that it would result in an all-male board at the ECB. However, some believe Mersch was rejected because many of the committee’s members do not agree with him politically. Mersch is known as an inflation hawk

The vote is not, however, binding and many expect the appointment to go ahead anyway.

11.26am:

The responses to news that the UK is out of recession keep coming in. Juergen Maier, managing director of Siemens Industry heralded the 1% rise as “great news for the UK economy”.

This is a really strong number that I think also confirms a catch up from last quarter’s bank holidays and special effects. The best thing about this data is that it now gives industry real confidence that a genuine recovery is firmly within reach.

Whilst it will remain tough for at least 12 months, it is the fastest growth seen since the crash of 2008 with manufacturing up significantly which we must see as confidence to invest for the future.

Where we need to work harder is to ensure a stronger local supply base for these industries, and that journey is going to take a little longer because it takes real long term investment in skills, automated factories and R&D.

11.24am:

Greek finance minister Yannis Stournaras has beentaken to hospital on Thursday, where he was diagnosed with a serious viral infection and exhaustion. ekathimerini reports:

The minister was discharged at his own request before returning to the Finance Ministry offices for talks with officials ahead of a scheduled meeting with Prime Minister Antonis Samaras.

ekathimerini then lists a staggering number of Greek ministers who have been feeling the strain from the punishing schedule of negotiations with the troika.

Earlier this month, Justice Minister Antonis Roupakiotis underwent an operation to remove a blood clot from his brain.

In June, former National Bank president Vassilis Rapanos turned down the job of Finance Minister, offered to him by Samaras, citing serious health problems. A few days before that [Prime Minister Antonis] Samaras himself underwent eye surgery.

At last October’s crucial European Union summit, two aides to the then Prime Minister George Papandreou suffered serious health problems.

Giorgos Glynos suffered a heart attack ahead of the meeting, while Giorgos Zannias developed high blood pressure during the summit and was ordered to stay in his room.

11.09am:

Back to the eurozone, where lending to companies has dropped significantly in September as the bleak economic outlook dampened demand.

The European Central Bank said loans in the private sector fell 0.8% from the same month a year ago, below expectations of a 0.6% fall.

Howard Archer at IHS Global Insight said the drop was not just down to uncertainty over the economic outlook but also a result of banks’ unwillingness to lend.

The concern is that a number of companies who do want to borrow – whether it be to support their operations, lift investment, explore new markets – and are in decent shape are finding it hard to.

10.55am:

Shadow chancellor Ed Balls has come through with a veritable essay of a response to the GDP figures. No wonder it took him so long. Some edited highlights…

He notes that the UK economy has grown by just 0.6% over the past two year, compared with growth of 3.4% in the US and 3.3% in Germany.

So the question for the coming months is whether and how we can catch up all the ground we have lost over the last two years and not keep falling behind as other countries move ahead.

Balls proposes a plan to secure and sustain a strong economic recovery, including using funds from the 4G mobile spectrum auction to build 100,000 affordable homes, a temporary VAT cut and a bank bonus tax to fund jobs for young people out of work.

We also need action to ease the squeeze for people on low and middle incomes, rather than a tax cut for millionaires. And we need long-term changes to make our economy stronger, including a long-term plan to rebuild our infrastructure and radical reform of the banks.

10.38am:

David Tinsley at BNP Paribas has a mixed response to the GDP data. He too says the entire 1% bounce could be down to one-off factors.

Still that might prove to be a little bit of tough assessment – it may well be the there was some weak positive momentum over the middle of this year. Certainly the labour market data would suggest that is the case.

Overall, appearances can be deceiving. The UK economy is not growing at an annualised rate of 4.0%! But nonetheless the economy is at least flat and maybe moving forward. That’s a better position then many economies elsewhere in Europe.

10.34am:

My mistake (re lack of Labour response, see 10.19am), Ed Balls’ spinner Alex Belardinelli did tweet on GDP about an hour ago.

10.29am:

The CBI sounds a more upbeat note on the figures. Director general John Cridland said:

It’s really encouraging news that growth has snapped back so strongly in the third quarter. Although the Olympics and Jubilee have made up the majority of that growth, these numbers do also seem to point to some acceleration in underlying momentum.

We expect conditions to remain positive going into the fourth quarter, reflecting some easing of the pressure on household budgets from lower inflation. But the global economic environment remains challenging.

10.28am:

Vicky Redwood of Captial Economics says it is possible that all of the 1% rise in GDP was down to temporary factors.

As the Olympic effects unwind, it is still possible that the economy contract again in Q4. This would leave GDP in 2012 as a whole shrinking, albeit by slightly less than the 0.5% drop that we have been forecasting.

But, she says, the Chancellor has already jumped on the figures as a vindication for sticking to Plan A.

Given that the public borrowing figures are also looking less dreadful than they were, a significant change of course in December’s Autumn Statement might now be a bit less likely.

10.19am:

There is (as noted by London & Capital Asset Management’s global head of dealing) a deafening silence from Labour, usually so ready to comment on economic figures.

10.17am:

Off GDP news for a minute and over to Italy, where retail sales were (very slightly) better than expected.

Retail sales were unchanged in August, compared with expectations of a 0.2% decline.

They continue to point to long-running weakness of consumer spending in Italy, where household budgets have been squeezed by rising taxes and stagnant wages. The economy is expected to shrink by around 2.5% this year.

10.08am:

More analyst comment on the UK GDP figures (see 9.30am – up 1% in Q3). Howard Archer of Global Insight, also sees the possibility of the economy slipping again before the end of the year.

The economy is far from out of the woods with further relapses highly possible in the face of still tough domestic and global (especially Eurozone) conditions. So it is premature for the Chancellor to contemplate singing in his bathtub (or on the train).

He says it is an extremely close call over whether the Bank of England opts for increase its quantitative easing programme in November.

Nevertheless, with recovery currently looking limited and far from guaranteed, we believe that the Bank of England will ultimately decide to give the economy a further helping hand – be it in November or delayed until early-2013.

10.02am:

And comments from the man himself. Chancellor George Osborne said (in an emailed statement, thank you MickGJ):

There is still a long way to go, but these figures show we are on the right track. This another sign [typo, Chancellor's own] that the economy is healing and we have the right approach: we’ve cut the deficit by a quarter, over a million new jobs have been created in the private sector, inflation is down, and the economy is growing.

Yesterday’s weak data from the eurozone were a reminder that we still face many economic challenges at home and abroad. By continuing to take the tough decisions needed to deal with our debts and equip our economy for the global race we’re in, this Government is laying the foundations for lasting prosperity.

10.00am:

Chris Williamson at Markit sounds a typically gloomy note. He says there is a danger that GDP will fall again in the fourth quarter.

The government will most likely make the most out of this good news, but unfortunately it is unlikely that the UK will see such a strong performance again for some time. In reality, the danger is that this figure fuels a misguided belief that the economy is on the mend, when in fact there is plenty of evidence to suggest that momentum is being lost again.

There is a real risk that a return to contraction might be seen again in the fourth quarter.

9.57am:

The official release is now up. Apart from the headline figure, it is worth restating that GDP is flat compared with the third quarter last year.

The ONS said Olympic ticket sales added 0.2%. They said the events would also have driven the creative arts and entertainment activities, hotels, food and drink and transport.

It said there was little evidence of an Olympic effect in retail, while video, TV and programme production was weak because of “people watching the Olympics instead”.

9.47am:

Independent economist Shaun Richards points to construction as a continuing worry.

9.45am:

And it seems the presentation is over. Simon Neville writes:

That’s it. As soon as it had started it has finished. The three cameramen start packing up their kit. The broadcast reporters dash off to start giving their analysis and the statisticians start to consider what they’ll say as they give a round of one-on-one interviews with Sky, BBC, Channel 4 and others.

9.44am:

The manufacturers’ organisation the EEF is quick off the mark with its response. Chief executive Terry Scuoler said:

Output across manufacturing and the wider economy has mounted a strong rebound confirming that activity wasn’t lost, just displaced from the previous quarter. This has to be regarded as a positive development, given the disappointing data in the year so far.

However, a true account of the UK’s economic performance has been skewed recently due to a series of one-off events, and this quarter is no different. The question is whether this first estimate is enough to signal an improvement in the underlying growth picture. With survey data, particularly in our major markets, pointing to difficult trading conditions in recent months, it’s unlikely this pace of expansion will be maintained into the new year.

9.42am:

The Office for National Statistics says we should look at the run of GDP figures, not just one quarter. It said output has been flat over the past year. A word of warning for the Chancellor, perhaps?

9.41am:

Here come the more muted responses. Data provider Markit notes that we are still significantly below the peak in 2008.

Economists calculate that underlying growth over the past two quarters is 0.3%.

9.35am:

9.34am:

More from Simon Neville:

And that’s it. No whoops or cheers. The bunting has not been hung out and champagne corks remain in. (Although there is a distant hubbub from the larger hall in the next room where the civil service fast track members are meeting. Keen is an understatement.

In terms of the detail, the UK service sector picked up 1.3%, industrial output was up by 1.1%, but construction dropped by 2.5%. Overall, it was the biggest rise since the third quarter of 2007.

9.32am:

9.31am:

9.30am:

Simon Neville writes:

We may have come out of recession but ONS budgets still being squeezed. A handful of biscuits and tea and coffee is all that await journalists

9.30am:

Britain is out of recession

The economy grew by 1% in the third quarter, pulling the UK out of the longest double dip recession since the second world war.

That is a genuinely good result. Economists said the Olympics and the bounce-back after the Jubilee weekend in the second quarter would add around 0.7% to output. This level means there is some genuine underlying growth.

The result will strengthen the chancellor’s hand ahead of his autumn statement in December.

9.29am:

My colleague Simon Neville is at the GDP presentation. He writes:

Only six journalists in the chairs with 5 minutes to go until start of GDP announcement in Church House conference centre.
One ONS staff member tells me 10 years ago there would be journalists from all newspapers. Another tells me to sit near the front to make it look busy…

9.23am:

Adding to the corporate gloom, Santander said net profits dropped by two thirds in the nine months to September.

The eurozone’s biggest bank said it had been hit by writedowns on bad property investments made during Spain’s decade-long housing boom.

Santander has written off €5bn in losses and says it has now completed 90% of the writedowns, forced on the bank by the government, of repossessed housing and unrecoverable loans to developers.

It has also increased provisions against bad debts to €9.5bn.

9.04am:

A quick look at the markets, which are looking relatively buoyant, considering the dire corporate news. (see 8.05am)

UK FTSE 100: up 0.5%, or 29 points, to 5834

France CAC 40: up 0.8%

Germany DAX: up 0.4%

Spain IBEX: up 0.5%

Italy FTSE MIB: up 0.6%

8.54am:

Gary Jenkins of Swordfish Research has a witty take on GDP this morning.

The [Q3 GDP] figure should be “good news” or it would indicate that our PM can’t read…I guess the Chancellor can’t read train tickets so who knows what the figure will be…

He also has an interesting take on ECB President Mario Draghi’s speech to the German parliament yesterday.

Mr Draghi came, he saw and he got out alive. Whilst you could make counter arguments for nearly everything he said, if he had not acted when he did then Spanish bonds would now be talked about in price rather than yield terms and we might be facing a complete implosion of the Eurozone. So you pay your money and you takes your choice.

I can’t resist mentioning the following comment though; “OMT’s will not lead to disguised financing of governments…” Well no, quite. There is nothing disguised about it.

8.43am:

Sweden has kept its key interest rate at 1.25% as expected but said it would be raised at a later stage and at a slower pace than forecast in September.

What’s more, some of the members of its rate-setting committee advocated cutting the rate this month, with one pushing for a cut to 0.75%.

8.24am:

Celebrations for David Cameron, at least, will be curtailed. He is due to meet Herman Van Rompuy, president of the European Council at midday to wrangle over the EU budget.

It is likely to be a heated conversation. The European Parliament this week backed a 6.8% rise in EU spending for 2013 and an overall rise of at least 5% for 2014-2020, both due to be agreed before the end of the year.

The long-term budget requires unanimity among the 27 member-states and Cameron has threatened to veto any increase above inflation. 

The budget for next year, however, is decided by qualified majority voting, meaning Britain could be overruled.

8.12am:

Betting for the GDP figures are in. Our office sweepstake runs from +0.3% to +1%. Whatever happens the government will laud it as a success, but it’s worth noting what Vicky Redwood at Capital Economics said late last week.

She thinks the rise in GDP will largely be a result of temporary effects, such as the Olympics and a bounce back after the jubilee weekend in the second quarter dented output. Those factors will add at least 0.7% to third-quarter GDP, she said.

GDP will therefore need to have risen by more than that to point to any recovery in underlying output. Anything less should be viewed as disappointing.

For the record, she is betting on +0.6%.

8.05am:

Dire corporate earnings out of Europe

There’s a torrent of bad news from companies in the UK and the eurozone out this morning.

German luxury car company Daimler was perhaps the worst, warning that it would miss its earnings forecast by around €1bn. The company announced plans to cut €2bn of costs by the end of 2014. It blamed:

Significantly more difficult market conditions.

Net profits at Credit Suisse tumbled by 63% in the third quarter, prompting the bank to announce an extra 1bn Swiss francs of cost cuts by 2015.

France Telecom slashed its dividend for this year and next, after it said operating cash flow next year would fall by around €1bn. It has been hit by the arrival of Iliad’s low-cost mobile service and a nine-month price war.

And in the UK, WPP – the world’s largest advertising group – cut its full-year outlook for the second time in two months. Chief executive Martin Sorrell told Reuters:

We’re exceedingly cautious now. There’s a lot of concern out there.

He said business owners’ main concern had switched from the fate of the eurozone crisis to how the US government would tackle its deficit.

7.47am:

Today’s agenda

  • UK preliminary GDP for Q3: 9.30am
  • Italy retail sales for August: 10am
  • David Cameron meets EC President: 12pm
  • US durable goods for September: 1.30pm
  • US weekly jobless claims: 1.30pm

In the debt markets, the US is selling three and six-month treasury bills, and seven-year notes.

7.46am:

Good morning and welcome to our rolling coverage of the eurozone debt crisis.

Today is all about Britain’s GDP figures, due out at 9.30am. David Cameron – who sees the data one day in advance – hinted yesterday it will be an upbeat release, with his comment:

The good news is going to keep coming.

Later in the day, data on durable goods orders in the US are expected to show growing consumer confidence across the pond.

But it’s not all good news. There’s a slew of gloomy corporate data from the UK and Europe out already this morning, more on that shortly.

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U.K. GDP figures for second quarter from Office for National Statistics surprise City analysts who had expected a 0.2% drop. The decline prolongs the first double-dip recession in 30 years and follows the 0.3% fall in the first three months of 2012 and a 0.4% decline in the final quarter of 2011…



Powered by Guardian.co.ukThis article titled “Shock 0.7% fall in UK GDP deepens double-dip recession” was written by Larry Elliott, economics editor, for guardian.co.uk on Wednesday 25th July 2012 09.09 UTC

Britain’s economic output collapsed by 0.7% in the second quarter of 2012 as the country’s double-dip recession extended into a third quarter.

Across-the-board weakness in manufacturing and construction coupled with the loss of output caused by the extra bank holiday to mark the Queen’s diamond jubilee were responsible for the setback, according to data from the Office for National Statistics.

Analysts in the City had expected a 0.2% drop in gross domestic product in the three months to June and were stunned by the scale of the fall in activity. The decline followed the 0.3% fall in the first three months of 2012 and a 0.4% decline in the final quarter of 2011.

Construction output dropped by 5.2% between the first and second quarters of 2012, with industrial production falling by 1.3% and service sector output by 0.1%

The first double-dip recession since the mid-1970s – when the UK was beset by high inflation and rising unemployment – meant GDP in the second quarter of 2012 was 0.8% lower than in the same three months of 2011.

Officials at the ONS said it was hard to assess the full impact of June’s additional public holiday on GDP in the second quarter, but officials expect a bounce back from the loss of production in the third quarter, when the London Olympics should also provide a boost to activity.

The news will come as a fresh blow to the chancellor, George Osborne, whose deficit reduction plans have been thrown off course by the poor performance of the economy. Output has declined in five of the last seven quarters.

Osborne said: “We all know the country has deep-rooted economic problems and these disappointing figures confirm that.

“We’re dealing with our debts at home and the debt crisis abroad. We’ve made progress over the last two years in cutting the deficit by 25% and businesses have created over 800,000 new jobs.

“But given what’s happening in the world we need a relentless focus on the economy and recent announcements on infrastructure and lending show that’s exactly what we’re doing.”

The data shocked City analysts. Howard Archer of IHS Global Insight said the figures were “a very nasty surprise indeed”. And Labour were swift to criticise the chancellor. Rachel Reeves, the shadow chief secretary to the Treasury, tweeted that the 0.7% contraction was a “disastrous verdict on George Osborne’s failed plan”.

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