The likelihood of a triple-dip recession has risen. It may still be avoided, but much depends on developments overseas. Official data confirms the disappointing indicators, meaning a contraction in the fourth quarter looks inevitable. Retail, exports and manufacturing all fell sharply in October. To constitute a recession, GDP would also have to contract in the first quarter, and the odds of this happening have diminished. Markit’s PMI surveys showed global growth hitting an eight month high in November, fuelled by faster growth in the US and China, plus signs that the Eurozone downturn could start easing early next year. UK exporters should benefit, while policy stimuli and lower inflation should also help prop up domestic demand. However, any setbacks from the US fiscal cliff talks or Eurozone debt crisis could easily push the UK back into recession, suggesting the risk of a triple-dip remains uncomfortably high.
Chris Williamson is chief economist at Markit.
The British economy is facing many headwinds, and will continue to struggle and stutter. Indeed, I expect GDP in the fourth quarter of 2012 to fall back after the distorted third quarter figure, as does the Office of Budget Responsibility. The 1 per cent jump was partly driven by the unwinding of the second quarter Jubilee effect and Olympic ticket sales. The data available so far for the fourth quarter (including October’s industrial production and retail sales) look weak. But going into next year, I would expect some very modest growth, largely driven by a pick-up in personal consumption. This, in turn, should reflect the easing of the squeeze on real incomes (though I still expect consumer price index inflation to be running ahead of earnings growth) and the remarkably resilient labour market, albeit partly supported by zombie companies. Barring disasters, a triple dip should be avoided.
Ruth Lea is economic adviser to Arbuthnot Banking Group.