ALL eyes in the City and Westminster will be on the Office for National Statistics tomorrow, as it prepares to release its first estimate of third-quarter GDP growth.
Britain’s economy is expected to have grown by 0.4 per cent in the third-quarter, a decent rate of expansion, albeit one substantially lower than the boom-style 1.2 per cent seen in the second quarter.
But any deviation from the consensus expectation – either downwards or upwards – is likely to be hailed by critics or supporters of the government’s policies as vindication of their own views. This reaction will come despite widespread warnings in the City that it would be a mistake to read too much into early statistical releases, which are often revised.
Independent economists remain deeply divided about the prospects for 2011, on whether more QE will be needed and on whether the comprehensive spending review will be expansionary or contractionary.
Some bearish economists, such as Capital Economics, are warning that the pace of GDP growth in 2011 is likely to fall short of the government’s expectations. Howard Archer, IHS Global Insight’s economist, this weekend downgraded his 2011 growth forecast to just 1.5 per cent, below the 2.25 per cent predicted by the Office for Budget Responsibility.
Archer said. “Our forecasts suggest the government will struggle to achieve its fiscal targets unless further corrective action is eventually taken.” The London School of Economics’ Nobel Prize-winner Christopher Pissarides repeated his warnings at the weekend that the cuts could exacerbate high unemployment and low job vacancies.
Others, however, remain significantly more bullish. In a note out this weekend, Michael Saunders of Citigroup said: “We do not expect fiscal consolidation to derail the recovery, given the low pound, low interest rates, plus prospects for a pickup in corporate investment and employment. Growth will not be spectacular, but should be sustained. Extra QE is an option, but we doubt it will be needed to underpin recovery.”
Saunders’ latest growth forecasts show UK GDP going up 1.5 per cent this year and 2-2.5 per cent in both 2011 and 2012.