Risk of another GDP decline, warns the MPC’s Kate Barker

City A.M. Reporter
Britain’s economy may contract again for one quarter, but is unlikely to return to recession, according to Bank of England policymaker Kate Barker.

Barker said the harsh winter weather hit retail sales at the start of this year but that February’s business surveys had painted a more upbeat picture of the economy, in an interview that did not touch directly on the outlook for monetary policy.

“I think lots of things were going on at the start of the year which makes it difficult. We had the VAT rise, where some people bought goods ahead of the increase, and we had the bad weather in the first part which, I’m sure, affected retail sales figures.”

She added: “It’s possible we will have a quarter when GDP falls, but I don’t think it will be a double dip. I would be surprised if we go back to recession but I think recovery will be bumpy and fragile.”

Britain’s economy grew by 0.3 per cent in the final three months of 2009 after an 18-month recession that was the deepest in its post-war history. Recessions are usually defined as a period of at least two consecutive quarters of falling GDP.

Unexpectedly weak retail sales and trade and manufacturing figures for January have cast doubt on the strength of the recovery -- though economists say that at least some of the weakness may have been due to transport disruption from Britain’s coldest winter in 30 years.

Barker identified fiscal tightening by government and tight credit conditions for businesses as a brake on future recovery.