MPC member says economy may contract

 
Tim Wallace
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CONTRACTION may be underway, the Bank of England’s Ben Broadbent warned as the Office for National Statistics revealed more information on the composition of the third quarter GDP figures yesterday.

Growth was confirmed at 0.5 per cent in the last three-month period, as production industries increased output by 0.4 per cent and the services sector expanded by 0.6 per cent.

But Monetary Policy Committee member Broadbent told CNBC “the central forecast for GDP growth is around zero for the fourth quarter, so the chances of this being negative in that quarter are roughly one half”.

Business investment fell by 1.4 per cent in the third quarter compared with the previous three months and household consumption was flat, indicating a future growth may be weaker.

Furthermore, pay rose 2.3 per cent in the year to September, whilst the cost of living, measured by the retail price index, rose far faster at 5.6 per cent. The gap means real incomes fell sharply in the year.

Government consumption rose by 0.9 per cent, largely driven by increased health and defence spending.

Manufacturers experienced falling demand in November, according to the Confederation of British Industry’s (CBI) monthly industrial trends survey, published yesterday.

A net balance of 31 per cent saw exports decline, which will lead firms to cut production in coming months.